It’s not all bad news for the the UK stock market. AstraZeneca Plc has found a clever way of becoming a US-listed company without going all-American. There’s some nifty financial acrobatics on display with its plan to “harmonize” its share trading across New York, London and Stockholm announced on Monday. But it tells you how feeble Britain’s fundraising ability has become that this probably counts as a win.
If the function of the London bourse was merely to be a trading venue that priced AstraZeneca’s shares, there’d be little point in making any changes. The drugmaker is a £172 billion ($231 billion) company and it commands a premium valuation.
However, stock exchanges are also about accessing capital. AstraZeneca is an ambitious business and it could use its highly rated stock to raise cash or pay for acquisitions. The current setup, shares in London and quasi-shares called American depositary receipts in the US, hasn’t facilitated that. The market recoiled at an equity offer in 2019, and the stock price suffered for months after AstraZeneca used ADRs for a large US deal in 2021.
The extreme fix for this would be to move the primary listing to New York and shift headquarters in tandem (as this increases the likelihood of qualifying for the S&P 500 and attracting demand from tracker funds). That would have been a terrible blow for the UK.
Instead, it’s found a way of capturing a lot of the capital-market benefits of a US migration with less fuss. The firm will effectively invert the current structure. The ADRs are being scrapped and the shares will be fully tradable in New York. Meanwhile London dealings will be in the form of a quasi share called a depositary interest. TotalEnergies SE announced a similar move to scrap its ADRs last week, and British Airways owner International Consolidated Airlines Group SA has a DI structure. So it’s not quite as pioneering as it looks — but it’s still a clever way to square a circle.
A curious side effect is that these DIs would be exempt from UK stamp tax. All the while, AstraZeneca will retain FTSE 100 inclusion and Cambridge keeps the headquarters. Of course, the political backdrop here is the row between the UK government and the pharmaceutical industry over drug pricing. There are nevertheless solid commercial reasons for what the board is doing. With proper US shares, the company will be better placed to get deals done.
A drawback is foregoing potential S&P 500 membership. But as AstraZeneca is already so big and visible, US index inclusion would arguably be less beneficial than for a smaller UK company trying to capture the benefits of being US-listed.
In time, the bulk of daily trading in AstraZeneca shares will surely shift westwards. If this creates fresh challenges for the London market, it should be seen as a reaction to problems that already existed.
Nor are we likely to see a huge rush of copycat “harmonization” moves. The idea works for large companies that already appeal to US investors and might want the strategic flexibility of US stock. There aren’t many. Maybe Experian Plc, Compass Group Plc or Relx Plc, or even, as my colleague Marc Rubinstein has suggested, the London Stock Exchange Group Plc itself (if in theory). It’s not a remedy for the mid-cap firms in the FTSE 250 being picked off by private equity, like Spectris Plc.
The UK may be upset that London is implicitly being downgraded in the context of AstraZeneca share trading. But the authorities should want this to prove successful for the company. Otherwise, the alternative – a full migration – could creep back onto the agenda.
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