SoftBank’s selection of New York to list British microchip designer Arm has triggered the expected hand-wringing about a national decline in the UK capital.
But it’s not just about London. On Wednesday, when Bloomberg reported SoftBank’s latest plan, industrial-gas giant Linde also delisted its shares from the Frankfurt Stock Exchange. With a market value of $175 billion, the company was the most valuable company in Germany’s DAX index.
Especially since Brexit, European financial centers such as London, Amsterdam, Paris and Frankfurt are often framed as rivals. But the competition for capital between them could give the US hub more power. It’s a challenging pitch in today’s geopolitical climate, but for Europe the best answer may be cross-border cooperation.
Companies delisting from European exchanges have different circumstances. Arm was delisted from the London market when SoftBank bought it in 2016, so the Japanese company could take a blank sheet approach to re-listing it. More than any other, the technology sector skews heavily to the US, making New York the obvious destination despite Arm’s home in Cambridge, England.
Meanwhile, Linde became too large for the small German market. The DAX limits individual stocks to a maximum weighting of 10% to protect investors from excess portfolio concentration. This means that index funds and benchmark-hugging fund managers often sell for technical reasons. Linde found that whenever its market value deviated above the 10% cap, its stock index underperformed in the quarterly period of rebalancing.
If it doesn’t have an easy alternative, it could face headwinds for its share price. LVMH and Nestlé face concentration limits on the French and Swiss exchanges, respectively. But Linde is the product of a 2018 “merger of equals” between Linde, a German company, and Praxair, a US peer, so it had a US listing to fall back on. New York already handled about three-quarters of the business. its shares.
Construction giant CRH also said on Thursday it wanted to move its primary listing from the UK to the US, given the majority of its business in the US, and was looking to make acquisitions for which a liquid US stock would be a better currency. The company is operated from Dublin, Ireland, where it has a secondary listing.
There is a similar underlying logic in all three cases: the US is a large single pool of capital, leading to greater liquidity and higher valuations. While companies may once have used dual listings to appease different stakeholders, they increasingly need to commit to a single one. Reporting in two different jurisdictions is becoming more and more difficult, and tracker funds are making inclusion in the right index more important than ever.
The logical response for Europe would be to pool its resources: breaking down the bureaucratic barriers that keep capital in national silos. But this is easier said than done in a highly regulated industry. In a parallel case, the EU’s project for a banking union is still far from complete, ruling out cross-border bank mergers that could allow the region’s lenders to better compete with the likes of JPMorgan . And many of Europe’s largest companies are based outside the EU in Switzerland and the UK.
Most large listed European companies are too determined to consider transferring their stock. Among those who are about to go public and who already have deep US ties, however, the exodus is likely to continue.
Write to Stephen Wilmot at stephen.wilmot@wsj.com