As the board of the London Stock Exchange (LSE) was fending off a £2.7bn ($5.3bn) ‘final’ offer from US-based Nasdaq on 20 November, the second-largest US equity exchange has enjoyed success attracting listings by international companies, so turning up the heat on its rivals.
In the US domestic market, Nasdaq could be described as positively turning the tables on its large rival, the New York Stock Exchange (NYSE). After introducing a ‘Dual List Program’ in September 2004, Nasdaq has seen a number of companies switch from the NYSE. Before that point, such a move was difficult.
And, while the numbers switching are small, some have gone the other way since. But Nasdaq has won its fair share of ‘switches’, no doubt as a result of substantially lower initial annual and continual listing costs than on NYSE. In fact, Nasdaq’s maximum ADR annual fee is $30,000 and compares favourably with the maximum continuing annual fee on NYSE of up to $500,000 (>125m shares outstanding).
While the latest ‘exchange wars’ saga is yet another twist in a story that seems to have gone on forever, what is more surprising is the number of column inches devoted to London’s pre-eminence, and knocking the NYSE and Nasdaq in the process. To some extent the rules-based approach to compliance in US capital markets is having an effect, but exchanges there do not dictate Securities Exchange Commission policy.
With that backdrop, international listings on the two leading US equity exchanges are naturally becoming more important, especially given that the LSE said in November that it captured 50 per cent of all initial public offerings (IPOs) in Western Europe in the six months to 30 September 2006 and had more IPOs than both Nasdaq and the NYSE.
In the US in 2005, of the top 10 highest-performing IPOs nine were on Nasdaq, with two being Chinese (Baidu.com, ‘the Chinese Google’, and China Medical Technologies).
Much of the media noise obscures the full picture outside Europe – and in emerging markets. True, the LSE now lists 41 Chinese companies and 87 continental European companies, and the international companies on its AIM list now total 283. And pressure is building on the US to adopt a more flexible UK-style approach to regulating its capital market.
Charlotte Crosswell, head of Nasdaq International, told FT Mandate in London days prior to the latest bid: “What you are seeing on the main markets is that NYSE, Nasdaq and LSE are bringing in roughly the same amount of international companies.”
Strip out AIM listings on the LSE during 2006, and a different picture emerges. By the LSE’s own openly published ‘Main Market’ factsheet (October 2006), the exchange saw three new international equity issues for October with a total value of £777.1m, and 15 issues for the year to that point. That’s way down on a collective total of 681 new and further UK and international to the same point.
Ms Crosswell adds: “When I’m in China talking about Nasdaq to potential companies, regulators and exchanges… we don’t really see that much competition from the LSE.
“I know the LSE is busy promoting AIM, but as an exchange we haven’t been talking about those kinds of deals because a company raising $5m to $10m generally does that through a private placement. And, in fact many of those companies think of AIM as a private placement.”
By contrast, Nasdaq has chalked up 14 IPOs for the year to October 2006, and saw another two listing in early November. This followed 23 foreign IPOs in 2004 and 22 in 2005. (NYSE had attracted 11 for the year to 13 November 2006). It’s still way down on 2000 (78 foreign listings on Nasdaq versus 26 on NYSE).
Having hired a Russian speaker to raise Nasdaq’s profile, Ms Crosswell says the Russian market is its “toughest market and toughest challenge”. It’s also one of the few markets where Nasdaq competes aggressively with the LSE.
While it’s no secret that Russian companies have come to London recently, with property developer Sistema-Hals debuting this November on the LSE’s main market, Nasdaq could be said to be fighting hard for spoils. Winning the IPO for CTC Media Inc., an operator of a Russian television network, was a real coup given that it was fundraising of around $500m (29.42 million common shares).
“The CTC listing was a good win for us,” says Ms Crosswell. “It was the biggest ever US offering of a Russian company and helped to boost our visibility there.” As a result her team are talking to various parties in Moscow and elsewhere.
China now represents the fastest-growing market for Nasdaq, with virtually every deal now over $100m mark. Reflecting changes in Chinese listings, Ms Crosswell says: “The first 20 IPOs really came from the technology sector. Yet in 2006 what we see in China is a shift - albeit with a strong focus on technology – to the manufacturing and the service sectors, with a budget hotel chain being a good example.”
