The UK stock market is confronting a potential exodus as more companies consider shifting their primary listings to the U.S., posing a significant threat to the country’s financial landscape. The FTSE 100, the primary stock index in the U.K., has faced challenges throughout 2023, struggling to gain momentum and finding itself in a battle for European supremacy with Paris.
The London Stock Exchange (LSE) now grapples with a renewed existential threat: U.K.-based companies choosing to list their shares in the U.S. The FTSE 100’s stagnant performance and growing competition from other financial hubs have contributed to an environment where investors and companies see untapped value overseas.
A notable example is Pearson, a prominent publishing and education company. Cevian, Europe’s largest activist firm and Pearson’s biggest investor, has suggested that Pearson should consider changing its primary listing to New York to enhance its share value. Christer Gardell, managing partner and founder of Cevian Capital, emphasized that changing the listing is an “easy and effortless way to increase the value of a company.” Gardell pointed out that Pearson, with the majority of its sales and executives in the U.S., is essentially a U.S. company listed in the U.K. for historical reasons.
This trend of companies considering U.S. listings is not unique to Pearson. Other companies, such as Arm and CRH, have opted for New York listings over London, citing valuation gaps and market presence as key drivers. Even travel company Tui, the U.K.’s largest package holiday operator, is contemplating leaving the FTSE 100 for a Frankfurt listing, citing lower costs and potential benefits related to European Union airline ownership and control requirements.
The lure of U.S. listings has caught the attention of Nasdaq, with Karen Snow, global head of listings at Nasdaq, noting increased interest from U.K. companies exploring the prospect of listing in the U.S. The U.S. is viewed as an attractive option amid concerns about the U.K. stock market’s performance in 2023, which looks set to be the first year since 1995 that the London Stock Exchange has raised less than $1 billion through IPOs.
As U.K. companies eye the potential benefits of U.S. listings, the London Stock Exchange faces a critical juncture, navigating challenges that include low valuations, falling liquidity, and a diminished appetite for IPOs. The outcome of this trend could impact the U.K.’s financial ecosystem, signaling a shift in the balance of global financial markets.
