NOTE: Free essay sample provided on this page should be used for references or sample purposes only. The sample essay is available to anyone, so any direct quoting without mentioning the source will be considered plagiarism by schools, colleges and universities that use plagiarism detection software. To get a completely brand-new, plagiarism-free essay, please use our essay writing service.
One click instant price quote
Equity Market International equity offers are booming. In time, their success will transform domestic new-issue markets too. Several trends have contributed to the growing attraction of peddling a new share issue in a number of markets simultaneously. Cash-strapped governments are being pushed into privatizations that are too big for domestic stock markets to absorb at prices that are acceptable to the seller. Less often, a company also needs more than its home market can provide; frequently, however, firms that trade globally are seeing the merits of a global shareholder-base to match.
And investing institutions, which control a growing share of private savings, are becoming ever keener on diversifying their portfolios across national borders. Investment banks, hungry for the fat fees that go with global equity offers, have done their bit to rev up interest in them. The big firms are competing fiercely for mandates. Most are going to American houses such as Goldman Sachs, lead manager for Repsol and Singapore Telecom, and Morgan Stanley, lead manager for Argentaria. Merrill Lynch, Lehman Brothers and Credit Suisse First Boston are other prominent international-equity sponsors. Invigorated by a boom in new issues on Wall Street, these firms are hoping to conquer the rest of the world too.
Their biggest non-American challengers are Britains S. G. Warburg, lead manager for BT- 3, and Frances Paribas. Japanese houses have dropped out as the sinking Tokyo stock market drags down their capital; Nomura also lost face when the issue that it lead-managed last year for GPA, an Irish aircraft-leasing firm, fell through. The business is highly concentrated. In the past five years, a barely changing group of half a dozen firms has won two-thirds of all mandates for international equity issues. (Finley) Why the American dominance?
One reason is the growing weight of American investors. A few years ago, the biggest buyers of global equities were in Japan or Britain. Now America is the hottest market; institutions that find Wall Street overvalued are waking up to the attraction of overseas investment. In both 1991 and 1992, net American purchases of foreign equities totaled around $ 50 billion; in the early 1980 s the figures were negligible. This naturally gives an advantage to the institutions closest advisers: American investment banks.
Foreign houses have not built up American distribution i. e. , strong links with big investors. Many European houses are anyway more used to peddling bonds to investors whose main interest is price, than equities to investors who must be convinced about the health and prospects of a specific company. (Finley) Another reason for American houses strength is the spread of book-building as the preferred way of selling international equities. Investment firms solicit bids for a new issue at indicative prices and then, when their book is complete, price and sell the issue in a single day. This is standard practice in the American market. European intermediaries are accustomed instead to fixed-price offers that are underwritten by domestic institutions a few weeks in advance.
European shareholders have pre-emption rights which entitle them to first call on secondary offerings; and underwriting is common practice for new issues, too. Both approaches have their merits. A fixed-price offer gives issuers greater certainty and intermediaries lower fees. In a volatile market, an underwritten offer may be the only way a company can raise money. But underwriters demand a discount often 10 - 20 %- against the chance that share prices will shift while the fixed-price offer is outstanding. So issuers who want to get the most for selling their shares tend to prefer book-building, even though fees are higher.
Britains National Audit Office last year concluded that book-building for BT- 2 had yielded a better price than underwriting would have done. In America, companies that launch underwritten secondary issues see their share price fall further than those which choose book-building, reckons Morgan Stanley (though firms that seek underwriting may be in worse shape anyway). As book-building becomes more transparent, it is growing more attractive to companies that want to spread their equity widely among stable, long-term shareholders. Lead managers now run a computerized book of bids, which (unlike in the past) they share with the issuer. The open book also makes it easier for the seller to encourage investors to bid early and high, by promising to allot more shares to them. (Finley) International book-building puts a premium on intermediaries experience and ability to sell to 300 -odd investing institutions around the world. That is why so small a group of internationally powerful banks are repeatedly chosen as lead managers.
The spread of global issues is slowly opening the business of managing new share issues to outside competition years after stock markets have been liberalized. In the book-building for BT- 3, Warburg has decided to allow the 11 members of its global selling syndicate to pitch to any big institution anywhere, dispensing with national or regional tranches reserved for national firms. The idea is to make powerful syndicate members compete as never before; but it also restricts non-syndicate members to selling only to small investors. Four European banks, in protest at this restriction, dropped out of the BT issue recently. (Finley) There is plenty of resistance both to the American investment banks and to their book-building technique. German companies have on occasion preferred to give business to the big universal banks that are their biggest shareholders than to more competitive foreign firms. New issues in Paris remain largely the preserve of French houses.
Pre-emption rights reinforce the status quorum they are increasingly being waived. In France and Spain, for instance, several secondary issues in the past two years have included a 25 % international tranche sold through book-building. The pressure to get out from under pre-emption rights is growing elsewhere, too. Zeneca, a new drugs firm spun off by Britains ICI, is about to make a? 1. 3 billion ($ 2 billion) rights issue.
It is no secret that Zeneca would have liked to launch a straightforward international equity issue, to increase its receipts. Instead, blocked by pre-emption rights which require it to offer the shares first to existing shareholders, Zeneca is resorting to a curious wheeze: Warburg will buy the rights to a block of Zeneca shares in the market, in order eventually to place the equities with investors abroad. In five years time, such roundabout measures are unlikely to be needed. (Simms) Moving along the research we are going to talk about the future of equity markets in Europe, looking at the London Stock Exchange and the issue of whether or not there will be any independent future for the smaller international equity markets, such as the Warsaw Stock Exchange. According to the article published in UK newspaper Daily Telegraph, Euronext and other European stock exchanges made an approach towards London Stock Exchange, which increased the value of its shares to record high amounts.
There are currently two main competitors to participate in the takeover of the London Stock Exchange, which are Euronext and Deutsche Borse. They are now in the stage of negotiation with LSE executives upon the issue of price of the shares. Recently LSE issued the end of year statistics, which showed that it had attracted 275 new companies to its main market and junior Aim exchange, accounting for 80 pc of all initial public offerings (IPOs) in Western Europe. The IPOs raised pounds 7. 6 billion, up 64 pc on 2003, according to the article.
These figures show that the value of LSE will not decrease and should stay stable, also that the LSE is currently in a good position in business. Most likely London Stock Exchange will stay in business but will become a part of the Euronext or Deutsche Borse, which is part of the globalization trend. Most businesses in the world are becoming owned by more successful and global oriented organizations and here we see similar case. According to the article the position of the LSE is currently profitable and they constantly increase the amount of companies cooperating with it. Thus it is possible to say that LSE is a very good place to invest money, considering future growth and profit increases. The other situation that we are going to mention in this report is the situation with kind of a smaller organization Warsaw Stock Exchange as it has been presented in the article published in Financial Times.
Here we have a similar situation but with many substantial differences. Warsaw Stock Exchange is currently owned by the state and therefore it is impossible for other bigger organizations to share ownership with it. WSE is relatively small if to compare with many other worlds giants of this business area but it is the biggest one in Eastern Europe. Therefore many international investors are interested in cooperation with WSE of different forms. The government recently issued a bid for privatization of the WSE, thus in the future making it possible to be sold for investors, although the major question faced by the authorities is the amount of shares that will continue be owned by the government. It is recommended to leave only 30 % for the state and the rest for potential investors.
WSE currently has three different opportunities: continued independence, an alliance with another exchange, or the creation of a strong regional market. WSE has close business relationships with Euronext, sharing the same technology. London and Deutsche Borse are considered outside candidates for partnership with Warsaw. Therefore we see a constant world trend of globalization of the most significant business organizations including international stock exchanges.
In both cases that we were looking at we see the willingness of greater organizations to take smaller organizations under its control. This is similar to many other businesses situation, and it is difficult to predict what outcomes it will bring. The only important thing that is necessary to mention in this situation is the importance of government involvement in managing and coordinating these global processes. Bibliography: Simms, Robert A.
International with Ease. Financial Planning, Jan 2000, Vol. 30, Issue 1. Call, Vince. Of Correlations and Diversification. Pensions & Investments, 9 / 20 / 2004, Vol. 32, Issue 19. Finley, Will.
Selling the World. The Economist, January 1998. Vol. 327, Issue 7810. Jan Cienski; Alex Skorecki.
Warsaw exchange at crossroads: Change seems inevitable but how will the largest bourse in east central Europe reinvent itself, ask Jan Cienski and Alex Skorecki. The Financial Times, Sept 3, 2004 p. 41. James Moore. Rival suitor sends LSE to record high; European commissioner backs Deutsche bid as Euronext joins talks with stock exchange, writes James Moore. Daily Telegraph (London, England) Dec 21, 2004.
Free research essays on topics related to: stock markets, daily telegraph, article published, wall street, london stock exchange
Research essay sample on London Stock Exchange Daily Telegraph
