Law Times

PAGE 10 FOCUS February 14, 2011 • Law Times Harnessing the benefits of Euronext BY JULIUS MELNITZER For Law Times Management Inc., and Halifax- based Homburg Invest Inc. — and about 50 U.S.-listed com- panies are cross-listed on NYSE Euronext, the European Union's largest regulated equities market with access to a multi-trillion- dollar capital pool. What they've discovered is T that Euronext listings are ideal for non-EU companies, includ- ing Canadian and U.S. busi- nesses, that want to diversify their shareholder base, gain a European trading presence or increase market visibility in the euro zone. "Globalization means that companies, customers, and suppliers have a presence in more locations than ever, and when these locations are in the euro zone, cross-listing on Eu- ronext certainly increases the hree Canadian com- panies — Imperial Oil Ltd., Brookfield Asset visibility of an enterprise or brand," says Marjorie Adams of DLA Piper in New York. Otherwise, the benefits of cross-listing on Euronext in- clude the ability to trade and list in dollars and euros; the ability to attract investors whose mandates only allow them to invest in euro-denom- inated shares; the potential for a lower cost of capital through increased liquidity premiums on equity; the fact that cross- listed companies typically have lower bid-ask spreads than sin- gle-exchange companies; and the fact that there's less asym- metry in information between capital markets as firms with multiple listings generally get twice the analyst coverage. "A Euronext listing also al- lows European money manag- ers to avoid certain regulatory filings and mandates for euro zone-only listed companies," says David Freedman, a securi- ties partner at Baker & McKen- zie LLP's New York office. In January 2008, Euronext made cross-listing even more at- tractive by introducing the fast- path process, a streamlined and cost-effective option for compa- nies. At least six companies have resorted to it since the process became available. But it's not just the giant international consumer brands that benefit from cross-listing on Euronext. Consider, for ex- ample, the case of Cliffs Natu- ral Resources Inc., a U.S.-based and NYSE-listed international mining and natural resources company. It's North America's largest supplier of iron ore and a significant producer of metal- lurgical coal. It also has a pres- ence in South America and the Asia-Pacific region. But by list- ing in Paris, Cliffs put itself in the company of other Euron- ext-listed mining and metals concerns. "All this means increased ex- posure for common shares and enhanced positioning as a glob- al company," Freedman says. "It is also consistent with the com- pany's ambition to build scale through diversification." Cliffs followed up with a 17.25-million share offering. British and European investors snapped up 80 per cent of the in- stitutional pot. Indeed, one year after the listing, the proportion of the company's institutional share- holder base in Europe and Brit- ain quadrupled, rising to eight per cent from two per cent of all institutional shareholdings. "Existing European investors have increased their holdings, and the listing has attracted new European investors to the com- pany," says Freedman, who rep- resented Cliffs on the listing. Nevertheless, Adams says companies should approach Euronext listings with care. "By cross-listing, companies could dilute their market and adversely affect their liquidity in the U.S.," she says. "Cross-listing probably works best for a U.S. company with a substantial existing pres- ence in the European market." Mark Bergman, a partner in Paul Weiss Rifkind Wharton & Garrison LLP's London, Eng- land, office, cautions that cross- listing using the fast-path option won't obviate the continuing differences in ongoing disclo- sure requirements between the United States and the European Union. "People should be under no illusion that the days of har- monized disclosure are here," he says. "It's simply a question of the degree of pain involved in filing in different jurisdictions, but there is always some pain and cost." While there was considerable discussion of harmonization among various jurisdictions before the recent financial cri- sis, the fall of Lehman Brothers Holdings Inc. put an end to the consultations. "Regulators continue to agree that making cross-listing easier is a good thing but they have become very worried about corporate governance issues," Bergman says. "And even when the general policies are similar, there are very different cultures and emphases around." In other words, it's important not to succumb to the blandish- ments of the various exchanges without careful consideration. "After all, facilitating cross-listing was one of the main reasons the NYSE invested in Euronext," says Andreas Fillmann, a securi- ties partner in Squire Sanders & Dempsey's Frankfurt office. Freedman counters, how- Inside you will find: • an up-to-date alphabetical listing of more than 57,000 barristers, solicitors and Quebec notaries, corporate counsel, law firms and judges in Canada; • contact information for the Supreme Court of Canada, the Federal Court of Canada, Federal Cabinet Ministers, departments, boards, commissions and Crown corporations; • legal and government contact information related to each province for the Courts of Appeal, Supreme Courts, County and District Courts, Provincial Courts, law societies, law schools, Legal Aid, and other law-related offices of importance. More than a phone book Hardbound • Published February each year • On subscription $141 • P/C 0600140999 One-time purchase $157 • P/C 0600010999 • ISSN 0084-8573 CD-ROM • On subscription $214 • P/C 0600260999 One-time purchase $229 • P/C 0600210000 ever, that the fast-path process addresses several of these con- cerns. "Fast path allows U.S.- listed, non-EU companies to use their existing filings with the SEC for a listing on NYSE Euronext or NYSE Alternext with or without a simultaneous capital issue," he says. "The re- sult is a turnkey product involv- ing a process that is simple, fast, and cost-efficient with marginal additional ongoing costs and disclosure requirements." In other words, fast path lets a company avoid draft- ing and translating a separate prospectus for each exchange. Rather, the documents filed with the domestic regulator serve as the primary filings for the appropriate European body. The company completes its prospectus by combining its domestic documentation with a summary wrapper that addresses any additional Euro- pean and local requirements. Freedman points out that Cliffs and other companies re- sorted to fast track and were more than pleased with the re- sults. Indeed, Cliffs had explored a listing on the London Stock Exchange but discarded the idea due to the costly and cumber- some process it required. "By contrast, the whole fast- For a 30-day, no risk evaluation call 1.800.565.6967 Canada Law Book, a Thomson Reuters business. Prices subject to change without notice, to applicable taxes and shipping and handling. CLL_LT_Jan10_11.indd 1 www.lawtimesnews.com 1/6/11 4:06:50 PM track process took under five weeks," Freedman says. The strategy wasn't mis- placed. Cliffs got approval from European regulators on March 31. Its shares began trading on Euronext on April 6. LT

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