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It looked like a done deal. In the summer of 2002, the senior executives of London’s Benfield Group Plc, the world’s largest reinsurance brokerage firm, prepared to take their business public. The company planned to launch its initial public offering on the New York Stock Exchange because of its international prestige, high valuations, and deep pools of investor capital. But the executives were starting to have some doubts. They were worried about Sarbanes-Oxley, the U.S. corporate governance law passed in 2002 in the wake of the Enron Corp. and WorldCom, Inc., accounting fraud scandals. The law would require senior executives to certify the accuracy of all financial statements. Benfield would have to spend heavily on lawyers and consultants to help the company comply with the new Securities and Exchange Commission requirements. An NYSE listing would also require pricey insurance to shield the company’s directors and officers from U.S. liability. “Where I’d seen clarity and certainty [with U.S. securities laws] before [Sarbanes-Oxley], I now saw huge costs and massive amounts of confusion,” says a senior Benfield executive who asked to remain anonymous to avoid offending U.S. regulators. Although the corporation had completed much of the paperwork required to list on the NYSE, it changed course. Last June the company floated its shares on the London Stock Exchange in an offering that raised $260 million. By staying in London, the company estimates it saved “millions of pounds.” The past year has been kind to the London exchange. After years of reigning as the leading stock market for international issues, London stumbled in the late 1990s as Nasdaq and the NYSE began courting foreign businesses. But in the last year the LSE has regained its footing � at least temporarily. In 2003 the LSE raised almost $9 billion through non-U.S.-based IPOs, compared to $4.5 billion raised by the NYSE, and just shy of $3 billion for Nasdaq. High-profile companies � among them Russia’s OAO LUKOIL and OAO United Heavy Machinery (OMZ), and the United Kingdom’s Yell Group PLC and Cambridge Silicon Radio plc � have recently rejected the NYSE or Nasdaq to float shares on the LSE. From the start of this year through mid-March, London had also hosted more IPOs than either the NYSE or Nasdaq. New York remains a much deeper investment market than London. But “London has become an increasingly competitive place to float shares, especially with European issuers,” says Edward Greene, a capital markets expert in Cleary, Gottlieb, Steen & Hamilton’s London office. Greene, who this month will become the general counsel for global corporate and investment banking group at Citigroup Inc., notes that in all of 2003, only two European companies � Mitchells & Butlers plc and BHP Billiton Plc � joined the New York Stock Exchange. For decades the U.S. markets were dominated by U.S. listings. But during the mid-1990s, Nasdaq and the NYSE started recruiting international companies, an effort that whittled away much of the LSE’s historical advantage with non-U.S. business. By the end of 2000, Nasdaq, the NYSE, and the LSE each had between 400 and 500 international listings. But then the global equity markets turned bearish, and the number of new issues plummeted in both countries. In 2003 companies worldwide raised a mere $50 billion in stock issuances, the lowest figure since 1992, according to Thomson Financial. Still, from January through early March of this year, the London Stock Exchange outpaced the Big Board and Nasdaq in total number of IPOs � 23 to 22 and 19, respectively. And with several dozen more in the pipeline, many think 2004 could be a banner year for London. Some of the credit goes to Sarbanes-Oxley. Shortly after the law was passed, a handful of overseas companies, such as Germany’s Dr. Ing. h.c. F. Porsche AG [see "Driving Force" ] and Japan’s Daiwa Securities Group Inc., scrapped plans for U.S. listings. “Initially, there was this fear that a CEO would walk off a plane at JFK and immediately get handcuffed,” says Tom Troubridge, the head of the capital markets group at PricewaterhouseCoopers’s London office. High compliance costs were also part of the problem. A recent Financial Executives International study reports that the lawyers, auditors, and software needed to implement Sarbanes-Oxley’s section 404 � which requires annual executive certification of a company’s internal accounting controls � cost companies with over $5 billion in annual revenues an average of $4.7 million. The study finds that on an annual basis, complying with 404 will cost a company that size an extra $1.5 million. “Some regulatory arbitrage might be taking place right now,” says Peter Yandle, international marketing director for Nasdaq, referring to Sarbanes-Oxley’s dampening effect on international companies looking to issue shares. “But that doesn’t change the fact that the U.S.’s capital markets are still the deepest in the world.” (NYSE officials declined to comment.) Listing costs are also slightly less expensive in London. While listing fees on the LSE are calculated on a sliding scale, just like on Nasdaq and the NYSE, London’s fees are generally cheaper; a company with a $400 million market capitalization will pay just over $10,000 annually on the LSE, versus upwards of $21,000 on Nasdaq and $35,000 on the NYSE. These extra costs aren’t a big deal for businesses with billions of dollars in annual revenue. But smaller companies are taking them into account. Cambridge Silicon Radio, a Cambridge, U.K.-based maker of wireless communication chips, considered a dual listing on both the LSE and Nasdaq. But according to CSR’s finance director, Paul Goodridge, complying with Sarbanes-Oxley for a Nasdaq listing would have cost the business close to $2.5 million on lawyers, consultants, and lost productivity. “Spending that kind of money just didn’t make sense for a company of our size,” says Goodridge. (Last year CSR’s revenues came to almost $68 million.) So CSR stayed home. It coupled a London listing with a 144A private placement in the United States, a widely used vehicle that allows a foreign company to raise money from U.S.-based institutional investors without first registering with the SEC. The move netted the business nearly $66 million. The exploding cost of directors and officers liability insurance is another part of the equation for any company eyeballing a U.S. listing. According to a recent survey by the Stamford, Connecticut-based actuarial consulting firm Towers Perrin, U.S. D&O insurance prices went up 29 percent in 2002 and an additional 33 percent in 2003. “It was a big reason behind our decision to list in London,” says a Benfield Group official. “The premiums we looked at were four times what they are in the U.K. The difference was millions of pounds.” It’s not just Sarbanes-Oxley that’s driving companies to London. In recent years the LSE has gone on a marketing offensive. In 2000 it moved from a non-profit to a for-profit institution, which enabled it to compete actively for listings, the way the more entrepreneurial NYSE and Nasdaq have been doing for years. LSE executives declined to say how much they have spent on marketing to foreign businesses. But, for example, LSE executives routinely make recruiting trips to Moscow. And in March the exchange opened an office in Hong Kong, in the hope of attracting listings from mainland China. That month, Capital Group, one of China’s largest infrastructure conglomerates, announced plans to list on the LSE, with hopes of raising close to $3 billion. LSE executives say that when they make their pitch to potential companies, they hardly ever utter the phrase “Sarbanes-Oxley.” Instead they play up the LSE’s “balance.” They talk about the U.K.’s “comply or explain” corporate governance regime, which requires companies to either abide by the U.K.’s corporate governance principles or simply explain in their annual report why they chose not to. According to Graham Dallas, the head of international business development for the LSE, the setup allows managements to govern their businesses with a unique amount of flexibility. “The system recognizes a fundamental truth in the corporate world; that companies don’t all come in one shape and size,” says Dallas. The pitch worked on Lukoil, Russia’s largest oil producer. In early 2002 the corporation sought to show that it practiced good corporate governance, and � with Sarbanes-Oxley brewing in Congress � Lukoil saw a London listing as the most “user-friendly” way of achieving that. “In terms of prestige, I don’t think there’s that much of a difference between New York and London,” says Lukoil’s lawyer Robert Aulsebrook, a partner in Akin Gump Strauss Hauer & Feld’s London office. Aulsebrook, who guided the company through the listing process, says London gives Lukoil credibility “without the costs and headaches associated with New York.” The LSE has also succeeded in selling itself as a viable alternative to the tech-heavy Nasdaq. Early last year Edinburgh-based Wolfson Microelectronics plc., which makes semiconductors for Dell Inc. computers and Apple Computer, Inc.’s iPod music players, among others, considered floating shares on Nasdaq, where most of its competitors are located. “We might have raised more money [with a U.S. listing],” says George Elliott, Wolfson’s chief financial officer. “But the costs were high, and the appetite for shares [in the U.K.] was tremendous, much bigger than we’d expected.” So last October the company listed shares on the LSE. The stock, which opened at below $4 a share, was trading near $6 a share at press time. In the past decade London has also developed another weapon: the Alternative Investment Market (AIM). The LSE founded AIM in 1995, at the beginning of the technology wave, in order to help start-ups raise cash. AIM has boomed in the last four years, in part by picking up dozens of orphan companies from Frankfurt’s technology-focused market, Neuer Markt, which shut its doors in 2002, and Brussels-based Nasdaq Europe, which folded in the middle of last year. At the start of 2000, 350 companies traded on AIM; today, 750 do. The bulk of AIM stocks are small British companies, from tech businesses to retail outlets to mining concerns. But increasingly, the exchange is becoming more international. Last October, Pennington, New Jersey-based Ocean Power Technologies Inc., which has developed a technology for turning ocean wave energy into electricity, raised $46 million through an AIM listing. “The European capital markets are more receptive to renewable energy ventures,” says Charles Dunleavy, Ocean Power’s chief financial officer. “But we also thought that AIM meets the needs of small, growing companies,” he says, referring to AIM’s listing requirements, which are cheaper and far less onerous than those for the “main market.” London also offers companies new to Western markets a unique amount of flexibility. Last year United Heavy Machinery, or OMZ, Russia’s largest manufacturer of engineering and exploration equipment, decided to go public. But the company’s brass didn’t feel ready to make all of the disclosures required for a full London listing, such as statements about cash reserves and the terms of the directors’ contracts with the company. So OMZ took a path unavailable in New York. It floated global depository receipts on the LSE, instruments that are traded among large institutional investors outside the U.S. “OMZ really just wanted a basic introduction to a well-regarded market,” says Adrian Cartwright, an OMZ lawyer and a partner in Clifford Chance’s London office. “New York doesn’t offer that stepping stone.” The recent interest in London hardly spells doom for Wall Street. Just under half of the $30 trillion capitalized on public markets worldwide still resides in the U.S. And experts on both sides of the pond think that, despite the extra hurdles, New York will continue attracting listings from big, stable businesses. “Going forward, companies that grew up in a culture of transparency aren’t going to find [doing a U.S. listing] that much of a leap,” says Stephen Miller, a lawyer at London’s Allen & Overy. Many capital markets gurus also wonder just how long London’s magic will continue. The recent scandals involving Dutch retailer Royal Ahold N.V. and Italian dairy giant Parmalat S.p.A. show that massive financial fraud isn’t just a New World phenomenon. “So far, [the U.K.'s] ‘comply or explain’ [regime] has worked well,” says Joseph McLaughlin, a capital markets lawyer at Sidley Austin Brown & Wood’s New York office. “But if the U.K. gets even a minor scandal, London will probably suffer.” To prevent this, the Financial Services Authority, the body that regulates the LSE, is mulling changes to the rules governing businesses that list in London. The FSA is considering requiring companies to report annual audits of their internal controls, much like Sarbanes-Oxley’s section 404. Experts fear that too dramatic a shift could tip the balance back to the U.S. But that doesn’t seem to be deterring the FSA. “Companies simply shouldn’t be able to use [deficiencies] in their internal controls as a defense to filing erroneous numbers,” says FSA project director Ken Rushton. But until the FSA tightens up its regulations, London will likely continue to gain at New York’s expense. “My [European] clients are all asking me how they can get out of their U.S. listings,” says Gregory Astrachan, a partner in Willkie Farr & Gallagher’s London office. “When I get the rare request about listing in the U.S., I tell them they better have a damn good reason for wanting to register there.”

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