UK listings/Spacs: the crown duals
City-boosting proposals are not enough to offset lack of EU financial services trade deal
For some Brits, dual-class stocks represent a faux pas as apocalyptic as calling napkins “serviettes”. A government-sponsored review by Lord Jonathan Hill nevertheless suggests that some shares should carry more votes. It is just one of the ways he believes the City can attract business. Unfortunately, none would compensate for the government’s failure to strike a financial services trade deal with the EU.
Hill makes some sensible proposals. They include a push to lure special purpose acquisition companies. These boom-time shortcuts to the public market are flourishing in the US. Their dowdy UK cousins, cash shell companies, have the disadvantage that their shares are typically suspended when they acquire a larger, privately held operating business.
The Tory peer is right to see such lockups as unnecessary. Higher valuations, liquidity and retail investor interest are factors behind the US Spac boom that the UK will find harder to replicate.
Dual-class shares would be more problematic for many UK investors. They see equal treatment of shareholders according to economic exposure as an inviolable principle. But purity now comes at too high a price in flotations forgone from tech company founders.
Five-year sunset clauses would be a workable compromise. Less helpfully, Hill would restrict high-vote share ownership to directors. He does not explain what happens to the stock if directors are ousted.
There is meanwhile a sense of tidal drift in reducing the allowable free float for a listed company to 15 per cent. The in-effect threshold only surged to 25 per cent a few years ago following corporate governance abuses at oligarch-controlled businesses.
Most mooted reforms simply replicate what happens in other markets. The tech revolution has changed the terms of trade in favour of entrepreneurs and against organised capital. Brexit has done the same for continental centres and the City. EU authorities no longer have to recognise UK venues and intermediaries as equivalent to their own. Hill cites Amsterdam’s booming share trade apparently more in hope than expectation that his reforms would claw back the lost business.