About 50 U.S.-listed companies are cross-listed on NYSE Euronext, the EU’s largest regulated equities market. What they’ve discovered is that Euronext listings are ideal for U.S.-listed companies that want to diversify their shareholder base, gain a European trading presence or increase their market visibility in the eurozone, the world’s second largest source of capital.
“Globalization means that companies, customers and suppliers have a presence in more locations than ever, and when these locations are in the eurozone, cross-listing on Euronext certainly increases the visibility of an enterprise or brand,” says Marjorie Adams, chair of DLA Piper’s capital markets group in the U.S.
Other benefits of cross-listing on Euronext include the ability to trade and list in dollars and euros; the ability to attract investors whose mandates only allow investing in euro-denominated shares; the potential for a lower cost of capital through increased liquidity premiums on equity; typically lower bid-ask spreads than single exchange companies; and less information asymmetry between capital markets, as firms with multiple listings generally get twice the analyst coverage. A Euronext listing also allows European money managers to avoid certain regulatory filings and mandates for eurozone-only listed companies.
In January 2008, Euronext made cross-listing even more attractive by introducing Fast Path, a streamlined and cost-effective way for U.S.-listed companies to cross-list on Euronext with fewer regulatory hurdles.
Six companies, including Anheuser-Busch Companies Inc. and Philip Morris International Inc., have used Fast Path since it became available. But it’s not just the giant international consumer brands that benefit from cross-listing on Euronext.
Cross-Listing Case Studies
Consider the case of Cliffs Natural Resources Inc. (CLF), a U.S.-based, NYSE-listed international mining and natural resources company.
CLF is North America’s largest supplier of iron ore and a significant producer of metallurgical coal. It also has a presence in South America and the Asia Pacific region. But by listing with Paris-based Euronext, CLF put itself in the company of globally recognized mining and metals concerns including ArcelorMittal, Vale, Rio Tinto, AngloGold and Harmony Gold.
“All this means increased exposure for common shares and enhanced positioning as a global company,” says David Freedman, who represented CLF on the listing. “It is also consistent with the company’s ambition to build scale through diversification.”
CLF opened on Euronext with an initial 17.25 million-share offering. British and European investors snapped up 80 percent of the institutional pot, and one year after the listing, the proportion of CLF’s institutional shareholder base in Europe and the U.K. quadrupled, rising from 2 percent to 8 percent of all institutional shares in the company.
“Existing European investors have increased their holdings, and the listing has attracted new European investors to the company,” says Freedman, a partner at Baker & McKenzie.
Similarly, Vale S.A., the Brazilian-headquartered mining company that is listed on the NYSE, diversified its shareholder base after listing on Euronext in mid-2008. European investors increased their holdings in the company by some 66.2 million shares in the nine months following the listing, even as U.S. investors reduced their holdings.
Then there’s NYSE-listed Weatherford International Inc., a global provider of oilfield production technology and services. Several years ago, Weatherford moved its principal executive offices from Houston to Switzerland to establish corporate headquarters more centrally located within its worldwide operations. The company’s revenue had trended eastward from North America in response to global spending on exploration and production of hydrocarbons, and Weatherford anticipated the trend would continue.
“Weatherford cross-listed to establish direct access to eurozone capital markets and to increase its global shareholder base, increase visibility in the Eastern Hemisphere and reinforce its European presence and global identity,” says Freedman, who also represented Weatherford on the Euronext listing.
In Freedman’s experience, the relatively new Fast Path process adds to the benefits by making cross-listing much easier.
“Fast Path allows U.S.-listed, non-EU companies to use their existing filings with the SEC [Securities and Exchange Commission] for a listing on NYSE Euronext or NYSE Alternext [a Euronext subsidiary aimed at small and mid-cap companies] with or without a simultaneous capital issue,” he says. “The result is a turnkey product involving a process that is simple, fast and cost-efficient, with marginal additional ongoing costs and disclosure requirements.”
In other words, Fast Path lets a company avoid a separate prospectus for each exchange. Rather, the documents a company files with the SEC serve as the primary filings for the appropriate European regulator. The company completes its prospectus by combining its SEC documentation with a summary “wrapper” that addresses any additional EU and local requirements.
CLF had previously explored a listing on the London Stock Exchange but discarded the idea for the costly process it required, an inhibition for a mid-cap company with $3 billion in revenues at press time. Fast Path allowed it to avoid the expense issues that made the London exchange impossible, and the whole process took less than five weeks.
CLF filed its annual report with the SEC on Feb. 26, 2009. Twelve days later the company announced its intention to cross-list on the Euronext exchange using the Fast Path process.
European regulators approved the listing on March 31, and by April 6, CLF’s shares began trading on Euronext.
While the benefits can be robust, Adams says companies should approach Euronext listings with care.
“By cross-listing, companies could dilute their market and adversely affect their liquidity in the U.S.,” she says. “Cross-listing probably works best for a U.S. company with a substantial existing presence in the European market.”
And while cross-listing through the Fast Path process may ease some of the regulatory pain, Mark Bergman, a partner at Paul, Weiss, Rifkind, Wharton & Garrison, cautions that it will not obviate the continuing differences in ongoing disclosure requirements between the U.S. and EU.
“People should be under no illusion that the days of harmonized disclosure are here,” he says. “It’s simply a question of the degree of pain involved in filing in different jurisdictions, but there is always some pain and cost.”