Outlook: Lucas Varity
Tuesday 10 November 1998
It is not at all common for investors to defy the wishes of their chief executive, but that's only because chief executives are not normally foolish enough to defy the wishes of their shareholders. Calls for Mr Rice's immediate resignation nonetheless seem a trifle intemperate, especially since he fell short of the required 75 per cent vote only by the narrowest of margins, But certainly Mr Rice is going to have to work hard at rebuilding bridges.
As a number of readers have written to point out, it is not obligatory to list in the US to obtain a US style share rating, even in auto components. Europe's second largest supplier of auto components, Valeo, trades on a significant premium to the US average, as elsewhere in the engineering sector do British Aerospace and Smith Industries. LucasVarity trades at a discount, it might be said, not because it is listed in the UK, but because it has failed to establish the same track record as its US peers.
All the same, Mr Rice has raised an issue which is not about to go away. We are said to live in a global economy, and if Anglo-American and other South African companies can shift their primary listings from Johannesburg to London because the cost of capital in London is lower, what's to stop a mass exodus from London to New York?
In the immediate future this plainly isn't going to happen, if only because the great bulk of British companies would almost certainly trade on a lower rating in the US than they do here. There are not many US investors who would be interested in a pure British utility or mortgage bank, for instance.
However, there are a number of UK listed companies for whom it might be appropriate. What made LucasVarity different is that a very substantial proportion of its business is in the US. Other FTSE 100 companies that fall into this category include Reuters, Pearson after the takeover of Simon & Schuster, and BP, which is merging with Amoco.
Nobody suggests these companies plan such a move, but if US capital markets do offer genuine competitive advantages, it might be something they'll be obliged to consider. Unless, of course, Europe after the single currency can develop a similar degree of capital market integration capable of delivering equal cost benefit. With Milan about to join the fledgling Anglo-German stock market alliance, the signs are relatively encouraging.
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