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City of London should woo unicorns with dual-class shares – review

Written by on 02/03/2021

Post-Brexit UK should look to attract companies to the London stock market through a listings structure that allows owners to maintain more control of their businesses, according to the findings of a review for the Treasury.

The report by former EU commissioner Lord Hill, ordered by the chancellor last November, makes a series of recommendations aimed at making the City more attractive rather than a bonfire of the current rulebook to bolster its competitiveness.

Rishi Sunak hopes to lure more international companies, especially so-called technology unicorns (privately held start-up companies valued at over $1bn), to go public in London which is currently trailing its largest rival, New York, easily.

Lord Hill
Image: Lord Hill says his report is not about seizing a competitive advantage for London but opening opportunities

As Sky News revealed earlier this week, the main recommendation is to allow entrepreneurs to retain greater control of their companies – by formalising the creation of dual-class share structures in the premium listing segment of the London Stock Exchange.

It essentially means that some shares would have more voting rights than others, under the proposals which the chancellor is expected to address in his budget on Wednesday.

A good example of the attractiveness of dual-class shares for companies was when Manchester United opted to float on the New York Stock Exchange in 2012 – delivering a snub to its home market.

The share offering, by the club’s owners the Glazer family, was aimed at raising cash to pay off debts they heaped on the business, to the fury of many fans, through their 2005 takeover.

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The shares that went on sale had no voting rights.

Old Trafford
Image: Old Trafford is home to Manchester United but the club’s shares are listed in New York

Lord Hill’s other main recommendation is to reduce the so-called free float requirements – the amount of a company’s shares that are in public hands.

The report argued for a fall from the current 25% to 15%.

The proposals will be expected to meet resistance from corporate governance champions who will claim investors face a dumbing down of their rights.

Chris Cummings, chief executive of trade body the Investment Association, welcomed the report as an important first step to “help re-energise capital markets and attract high-growth, innovative companies to set up, list, and grow their business operations in the UK, providing high value jobs that will benefit the economy”.

But he also called for “appropriate investor protections for minority shareholders”.

Lord Hill said: “The proposals we are announcing today are designed to encourage investment in UK businesses, support the development of innovative growth sectors such as tech and life sciences, benefit the companies who choose to float in London, simplify and streamline processes, encourage a more dynamic regulatory regime, and improve the UK’s competitive position, ultimately providing more opportunities for millions of investors to share in growth.

“The recommendations in this report are not about opening a gap between us and other global centres by proposing radical new departures to try to seize a competitive advantage.

“They are about closing a gap which has already opened up. All the recommendations are consistent with existing practices in other well-regulated financial centres in the USA, Asia and Europe.”

The report was, ironically, delivered to Mr Sunak at a time of a high demand for tech listings in London.

Trustpilot, the ratings platform, is planning a flotation that will value it at around £1bn while Deliveroo, the food delivery app, is expected to confirm its planned flotation on Friday.

Darktrace, the cybersecurity group, is also planning to float in the coming months.

A pair of Dr. Martens boots, a bottle of hand sanitiser, and social distancing signage seen through the window of a Dr Martens shop amid the outbreak of the coronavirus disease (COVID-19) in London, Britain, September 17, 2020.
Image: Dr Martens is to enter the FTSE 250 later this month when quarterly review of market valuations is implemented

London listings to date this year have included the bootmaker Dr Martens and Moonpig, the online greetings card and gift retailer.

Mr Sunak said of the review’s findings: “The UK is one of the best places in the world to start, grow and list a business – and we’re determined to enhance this reputation now we’ve left the EU.

“That means boosting the UK’s business environment and making sure we continue to lead the world in providing open, dynamic capital markets for existing and innovative companies alike, whilst protecting the high standards that underpin
our status as a world-leading financial centre.”

 Sky News

© Sky News 2020

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