AstraZeneca's US listing may pull other firms from London in its wake

By Charlie Conchie

LONDON (Reuters) -AstraZeneca’s move to upgrade its listing in the U.S. risks pulling liquidity away from London’s stock market and could pave the way for other large companies to follow suit, analysts, investors and advisers said.

The British drugmaker, one of London’s most valuable listed companies, said on Monday it would retain its listings in London and Stockholm but also plans to offer its shares directly on the New York Stock Exchange, moving away from the current depositary receipt structure, from next February.

AstraZeneca Chair Michel Demare cited the fact that U.S. shareholders represent the drugmaker's largest single investor group while its U.S. business accounted for 43% of total revenue last year and is expected to represent 50% of revenue by 2030.

Some analysts and policymakers expressed relief after some media reports had suggested the company was considering ditching its London listing altogether. That would have been another rebuke to the UK after AstraZeneca recently paused a 200 million pound ($268.80 million) investment plan in Cambridge and earlier this year scrapped plans to invest in a vaccine manufacturing facility in Liverpool.

A UK government spokesperson said AstraZeneca’s decision that it will stay listed, headquartered and paying tax in the UK brought clarity and was positive for employment, growth and innovation. "The decision signals clear confidence in the UK economy," the spokesperson said. "It shows British companies can scale globally, attract international investment – including from U.S. markets – and remain rooted in the UK."

A person familiar with AstraZeneca's plans said the company, which has a market capitalisation of $230 billion as of Monday's close, had no current plans to scrap its London listing. Yet some people flag risks that not only could trading of AstraZeneca shares now drift towards New York, but that other large London-listed firms will be watching to see if they should follow in its wake.

"A large proportion of large UK-listed companies have a big U.S. investor base," said Charles Hall, head of research at London investment bank Peel Hunt. "All companies look at what others do, and today this will be on the boardroom paper of a lot of other FTSE firms as they assess what the implications are.”

Around 22.5% of AstraZeneca's shareholders are based in North America, similar to FTSE 100 companies such as HSBC, Shell, Rolls Royce, BAT and Rio Tinto, which range at 20.5-24.7%, according to LSEG data.

"The risk to London will be if liquidity in AZ shares moves more to the U.S. than London as a result," said Alasdair Steele, a partner at law firm CMS.

VALUATION GAP

A number of London-listed firms have come under pressure from shareholders to consider swapping their primary listing to other markets due to a perceived valuation gap and the bumper performance of indices in other jurisdictions. The FTSE 100 is up 58% over the past decade, compared to the S&P 500, which is up 250%.

"The wider point is that Astra is just too big a company for the London market now," said Mark Kelly, chief executive of advisory firm MKP Advisors. "Big companies like AstraZeneca should be part of big indices, where billions of dollars are being traded every day, and the reality is that in London you miss out on some of that," he said.

Fintech firm Wise revealed plans to swap its London listing for New York this year, while mining companies Rio Tinto  and Glencore have both rejected calls to exit the market. Publisher Pearson has faced similar calls from investors to shift its listing.

Ian Pyle, senior investment director at Aberdeen, an AstraZeneca shareholder, pointed to a risk that the drugmaker may make a full exit in future. “The risk for the UK market is if this triple listing doesn’t deliver the desired outcome, then it may be a pathway to a primary listing in the U.S. and de-listing from the UK,” he said.

Pyle and Hall at Peel Hunt both said AstraZeneca's recommitment to London was a positive for the market in the immediate term.

The London Stock Exchange group, which has been campaigning for companies to choose the City for new listings, emphasized in a statement that AstraZeneca's decision represented "no change to their continued commitment to the UK, our capital markets and their important place as a key constituent of the FTSE100.”

Still, AstraZeneca Chair Demare, in his letter to shareholders about the move on Monday, highlighted New York's advantages: "The U.S. has the world’s largest and most liquid public markets by capitalisation, and the largest pool of innovative biopharma companies and investors,” he wrote.

Mark Austin, a partner at Latham & Watkins who has been involved in the overhaul of the UK's listing rules, remained confident of London's appeal.

"This should not be seen as a negative (for London)," Austin said. "It is about a UK-headquartered and UK and Swedish listed global company giving global investors easier access to its shares while keeping all the benefits of London."

($1 = 0.7440 pounds)

(Reporting by Charlie Conchie; Additional reporting by Alistair Smout and Danilo; Editing by Anousha Sakoui and Susan Fenton)