-- Jonathan Ford is a Reuters columnist. The views expressed are his own --
By Jonathan Ford
LONDON, June 23 (Reuters) - Want to know why Thomson Reuters plans to abandon its dual-listed structure? Just take a quick squint at the share register.
As of June 22, UK investors held just 5 percent of the news and information group's shares. Even in the London-listed PLC company, which is notionally reserved for the Brits, they accounted for only a quarter of the stock outstanding and had come to be dwarfed by North American investors, mainly Canadians, who held nearly two-thirds of it.
UK investors have been selling ever since 2008, when Canadian data publishing company Thomson bought British news and financial information provider Reuters, because they see the company as too exposed to weak financial markets. Meanwhile, the Canadians have been buying because it's one of the few ways to diversify away from banks and natural resources companies in the Toronto market, and there are tax benefits to owning domestic stocks.
So far from promoting ownership by UK investors, as was the stated intention, the structure had become a sort of Berlin Wall, forcing a primarily Canadian shareholder base to hold shares in two separate pools, reducing the liquidity of both. As a result, the company now plans to remove its shares from the London Stock Exchange and Nasdaq, and remain listed on The New York and Toronto exchanges.
Dual-listed structures are generally unsatisfactory. They involve the creation of two companies, with identical boards of directors and only one asset -- shares in the operating company.
A tangle of contracts is required to ensure that the economic interest of the two sides is kept constant through all variations of local profits, taxes and share issues. It's cumbersome and expensive. And when the FTSE100 index contains "UK" companies all of whose assets are located in places such as Kazakhstan, it is hard to know precisely what purpose a dual listing serves, other than as some due-diligence rubber stamp.
Historically, companies such as Royal Dutch/Shell and Unilever clung to dual listings not because of their virtues but because their disadvantages were offset by a single advantage (from the perspective of management): they were almost takeover proof. A few, such as Shell, have been forced to abandon such structures in recent years due to shareholder dissent.
Thomson Reuters, of course, does not require protection from takeover as it is 55 percent owned by the Thomson family. Therefore, it is comparatively easy for the board to dismantle a structure that costs it an extra $10 million a year for no obvious general benefit. The smaller UK pool has traded at a discount of as much as 20 percent to the North American shares, although this has recently narrowed to about 10 percent, and will now disappear altogether.
That said, Thomson Reuters itself and the Thomson family haven't done badly out of the dual listing while it lasted. The company has bought back the cheaper UK stock, retiring shares at less cost. Meanwhile, the family has arbitraged the difference between the two listings, selling North American shares and buying back British ones. Nice business when the discount is 10 percent plus.
That this arrangement is being abandoned suggests that both may have sated their appetites for now.
(Edited by Peter Thal Larsen, David Evans)