London’s financial system needs to be better prepared ahead of Brexit
The UK’s biggest challenge for our negotiations as we leave the European Union is to ensure that our economy is intact and properly prepared for the future.
The City of London has an important role to play in helping to create a sustainable economy and the Brexit decision certainly presents some serious challenges.
A solution that allows the UK’s financial services industry to prosper is essential. One element of this which is particularly important is our role as one of the leading capital raising centres for global financial markets.
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The UK’s regulatory and listing authorities can make it clear that any dual-listed companies looking to reform their corporate structure can keep their FTSE 100 listing. The current rules allow flexibility and access to capital, which is precisely what must be maintained and is needed to ensure UK markets maintain their edge.
It is the attraction of London itself – a liberal, global city, with deep respect for the law, a helpful time zone for dealing internationally around the globe and with English as our language – which attracts the headquarters of businesses and with them the whole financial eco-system of corporate lawyers, accountants, consultants and investment bankers.
Recent news that Unilever is to leave its iconic HQ on Blackfriars and unify its headquarters into Rotterdam is worrying. It is not just about the loss of jobs, but also an indicator of where this global titan sees the centre of gravity over the next few years.
Whilst part of the justification is to protect against an attack similar to the bid approach faced from Kraft Heinz last year or perhaps a desire to hide from our open and transparent rules on takeovers which themselves attract the two-way free flow of capital.
The obvious counter is to highlight the choice of one of the other dual-listed Anglo-Dutch FTSE 100 companies RELEX, previously Reed Elsevier, which has chosen the UK over the Netherlands. It has clearly acknowledged simplicity and unification as being more important determinants than thinly veiled corporate self-preservation.
The FT reported that in return for losing its half share of the combined HQs, the UK may get other sweeteners such as research jobs. But the loss of one half of the Unilever headquarters begs the question of how could we be better prepared ahead of Brexit? The UK financial system should not wait for whatever may or may not come out of the Brexit negotiations and should act now before it is too late.
It is clear that the physical location of a company’s HQ does not need to determine its listing. And it is mutually beneficial for everyone across the UK to attract the world’s most competitive publicly quoted firms. Centuries of pragmatism and the specific language of the listing rules allow our exchanges to maintain a good degree of flexibility.
Besides RELEX, TUI in Germany, IAG in Spain and even Glencore are all internationally headquartered businesses which still have a FTSE 100 listing. Another case generating headlines is BHP. This dual-listed Australian mining company has a dual listed corporate structure, which some have argued would be simplified by unifying its structure and in doing so generate considerable shareholder value. A unified BHP should still be welcome on the FTSE 100.
Indeed, Unilever’s corporate unification does not need to jeopardize its UK premium and FTSE 100 listing. By offering to keep its FTSE 100 listing in return for promising to comply with the UK Takeover Code, UK shareholders could protect their full rights should Unilever move its boardroom. Unilever could be clear in asking, or the London Stock Exchange could take the lead and say that whatever it chooses to do, it will always have a premium FTSE 100 listing and with it the benefits of the substantial financial eco-system surrounding a listing on one of the world’s greatest exchanges.
As a Conservative I do not believe the Government should kow-tow to corporate giants and bend the rules or change the tax rules for them. However, it seems obvious that a proper focus on flexibility by our Listings Authority offers a straightforward and sensible path forward.
It is one which Britain should deploy regardless of the latest twists and turns of Brexit. As companies move, merge, and reform, we must stay nimble and adapt to ensure our listings retain capital from around the world. London’s Stock Exchange along with the many other sophisticated financial service businesses based in the UK are one of the UK’s great competitive advantage.
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