News that Smurfit Kappa is plotting to depart the Irish stock market for the buzz of Wall Street — as part of a plan unveiled on Thursday by the cardboard box-making giant to merge with US peer WestRock — could not come at a worse time for Euronext Dublin, the exchange operator.
With CRH set to cancel its Irish listing later this month as moves its primary quotation from London to New York, and Flutter Entertainment widely expected to decide on a similar move soon (after securing shareholder approval in April for a secondary US listing), three Iseq heavyweights are now in the departure lounge — even if they are all intent on remaining incorporated and headquartered in Dublin for tax and other reasons.
The trio have a combined market value of €74.4 billion — almost half of the €152 billion total value of the 20 largest companies on the Iseq — and account for much of the trading on the market.
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North America accounted for three-quarters of CRH’s earnings last year. Flutter’s fast-growing US fantasy sports betting unit FanDuel is gradually pulling the group’s centre of gravity across the Atlantic. And Smurfit Kappa’s planned merger with WestRock will propel it from bit player in the US market to the number two spot in packaging.
A private briefing note prepared earlier this year by Department of Finance officials for their Minister, Michael McGrath, highlighted fears that nutrition company Glanbia, insulation maker Kingspan and food group Kerry might also be tempted in time to follow suit.
The issue of large Irish companies taking off to larger, more liquid markets wouldn’t be so worrying if there was a steady pipeline of new companies floating and using the equity markets to grow.
Market observers say Euronext Dublin should be attracting four to five new listings a year to be able to call itself a vibrant market. However, only three companies — Uniphar, Corre Energy, and HealthBeacon — have floated in Dublin in the past four years.
A triple whammy over the past two decades of Irish pension funds being pressed to lower their exposure to Irish equities, foreign takeovers of the main local investment players, and a shift by the industry from active stock-picking to passive investment, has conspired to make initial public offerings (IPOs) less attractive.
There is little evidence to date that an Irish market advisory committee — comprising executives from Euronext Dublin, Davy, Goodbody Stockbrokers, law firm A & Goodbody, Enterprise Ireland and US-based Susquehanna — set up early last year to come up with ideas to reboot the Irish IPO market delivered anything.
However, a final report commissioned by the committee and written by Grant Thornton is set to be submitted to the Department of Finance in the coming weeks, highlighting the economic impact of publicly quoted companies, challenges faced in the Irish IPOs market, and pitching list of recommendations.
Concentrating minds
The proposals are understood to include the development of a mechanism for institutional investors and family offices to come together to take a 10-20 per cent “cornerstone investment” in a company going through an IPO; tax incentives to allow entrepreneurs to sell some of their own shares in a company as part of a flotation; and a tax credit scheme to reduce the costs of accessing public markets for small- to medium-sized Irish businesses.
Might the flight of big-name companies from the Irish market concentrate minds across the system?
Meanwhile, concerns about defections to the US also prompted the Euronext Dublin to do a lot of work over the summer on its so-called Atlantic Securities Market (ASM), which was set up almost a decade ago to facilitate companies seeking dual Irish-US listings, but has essentially been dormant ever since, according to sources.
The exchange is in the process of revising ASM rules to fully align them with those of the US Securities and Exchange Commission — along with other tweaks — and aims to start pitching this market in the coming weeks to Irish companies.
An improved ASM is unlikely to change hearts at CRH, Smurfit Kappa or even Flutter — but it might help dissuade others.
