Switching to the NYSE
Viacom's Sumner Redstone was doused in green goo in a specially built 'slimatorium'. Joseph Nacchio of Qwest was the first in the new millennium to ring the opening bell. And Bowne & Co's Robert Johnson drove golf balls down Broad Street. However they marked the occasion, these CEOs were all undergoing the same rite of passage: switching to the New York Stock Exchange.
The CEOs were evidently thrilled, and so is the Big Board. It could not claim a record number of transfers from the Nasdaq Stock Market and the American Stock Exchange last year; but the quality and size of those that did switch were at a higher level than in the past. They included such household names as Nordstrom's, Coors and Washington Mutual. More significantly, the NYSE lured technology giants - typically the province of Nasdaq - such as Qwest and Quantum.
Patrick Healy, founder of Issuer Network, a Chevy Chase, Maryland firm that advises companies on listing, points out that a wave of switches followed Nasdaq's regulatory troubles starting around 1995. America Online, Gateway, Bay Networks and Boston Technology were all among the technology giants that came to the Big Board.
'Now Nasdaq has cleaned up its act, and both stock markets are back to playing head-to-head hardball,' Healy announces. 'In response to Nasdaq's heavy retention efforts, the NYSE has made a renewed commitment to the technology sector. It's responding to Nasdaq's challenge.' The clearest example of the NYSE's efforts, he says, is the exchange's strong new west coast office.
'We've been going after very large companies,' says Catherine Kinney, NYSE group executive VP and head of client services, 'and we did an excellent job last year.' She explains that when Nasdaq purchased the Amex, there were about 35 companies on the smaller market eligible to be listed on the NYSE. Some of the largest were Viacom, Hasbro and Cablevision, all three of which have since become Big Board stocks. About 10 percent of Nasdaq's 5,000 companies are eligible, and under 200 of them are over $1 bn in market capitalization. Those are the companies currently on Kinney's target list.
A major boost to the NYSE's listing drive was the mid-1999 change to rule 500, which had long been a contentious issue. The rule used to make it nearly impossible for a company to voluntarily delist from the NYSE by erecting obstacles such as the requirement of a supermajority vote of shareholders agreeing to the move. Now a company simply needs board approval and an audit committee review to delist. The change 'increases the pace of switches,' Healy says, and Kinney adds that prospective listed companies 'felt it was a good competitive strategy on the NYSE's part because it eliminated a barrier [to listing].'
Bill Coote, treasurer and director of IR at Bowne & Co, which switched from the Amex to the NYSE in July 1999, agrees. 'One thing that held us back was rule 500. That was a big deterrent,' he recalls. 'Once the rule was changed, it solidified our decision.'
It must be emphasized that Nasdaq is the happy home of a great many companies - as its list of 5,000 attests. Large tech issuers and smaller names in need of liquidity find it well suited. And while there has been only one defection from the Big Board since rule 500 was changed (Aeroflex, in March), Healy predicts more switches from the NYSE in 2000, and expects Nasdaq to 'up the ante' with advertising and other enticements to lure companies away from the NYSE.
Rule 500 changes were 'a step in the right direction,' says Nasdaq Stock Market spokesman Scott Peterson, 'but there are still unnecessary roadblocks. That said, some companies feel that the benefits of Nasdaq are so obvious that they're willing to overcome those barriers,' he adds, pointing to Aeroflex, which in March became the first ever switch from the NYSE to Nasdaq. 'Aeroflex is the first. It won't be the last.'
Other factors besides rule 500's overhaul influenced Bowne in its decision to switch stock markets. 'Current and prospective shareholders were telling us it would help them if we were on the NYSE - more visibility, more glamor,' Coote explains. He notes that there was also some uncertainty around the merger of Nasdaq with Amex: 'We didn't know what that would hold.'
Coote says that while Bowne previously had a 'terrific team' at the Amex, a lot of people left at the time of the merger. 'We weren't getting much support, and it was as good a time as any to jump to the NYSE.'
Bowne was also convinced that the NYSE would provide it with more visibility among overseas investors, a conviction echoed by other companies that have made the switch. 'Viacom has come of age, and MTV, VH1 and Nickleodeon are starting to take a position globally,' explains Marty Shea, the entertainment company's IRO. 'As the business grows overseas, our opportunity to attract investors overseas grows with it, and international investors have a predilection for Big Board listed companies.' Since making the switch to the NYSE last April, Viacom has taken two trips to Europe and grown its overseas shareholder base to 5-10 percent.
It's not an easy decision to switch markets, notes Lee Wolfe, head of IR at Colorado's Qwest Communications International, one of the largest transfers to date. Like Viacom, the company was at least to some extent influenced by the NYSE's international visibility.
'As we expand our reach and attract investment globally, as well as doing business on a more global basis, it seems the NYSE has a higher profile on the global scene.' With only around 2 percent of its publicly traded shares held overseas, Qwest also wanted to further capitalize on the European interest that came with its recent IPO of its European operations with KPN, the Dutch telecoms company.
Nasdaq's Peterson says this gap in overseas awareness is changing rapidly, considering that Nasdaq has more non-US listings than the NYSE - some 485 - while the creation of Nasdaq Japan and Nasdaq Europe 'is going to demonstrate a whole new way of bringing pools of liquidity in other markets to the trading of our companies.'
More important than international visibility in Qwest's decision to switch, however, was concern over stock price swings at home. 'One of the things that bothered us on Nasdaq was the amount of volatility we experienced,' Wolfe says. 'Part of it was due to the natural maturation process of our stock, and it was particularly volatile at certain points such as when we acquired LCI International in mid-1998. We felt that the NYSE's auction market and its focus on the specialist function would help counter volatility.' Simply put, as Qwest completed its merger with US West, the Denver-based Baby Bell, 'Our needs were changing.'
Qwest put the auction market to the test immediately, with stormy conditions striking technology and telecoms companies in the opening weeks of 2000. And with the US West transaction in the offing, arbs were piling into the stock. Qwest's stock price bobbed $5 down then up again. 'In the past with all this happening, we would bounce around a bit. But this was smoother, and we got a clear sense of how much arbitrage activity there was. We get real-time information from our specialist about short selling, and who is active in the market. We had to work really hard to get the same information when Qwest was listed on Nasdaq - and then we couldn't always rely on it.'
Indeed, NYSE specialists have come under the spotlight in the last two years as companies now have the chance to help select who handles their stock.'It's important in today's world that the specialist be ready, willing and able to communicate with clients regularly, whenever events in the market affect their stock,' asserts Jim Coufos, managing director at specialist Spear Leeds & Kellogg, which averages nearly 400 phone calls a day to clients.
He says that in the process of switching to the NYSE, a company must 'build a relationship' with the specialist they choose. 'It's part of the IRO's job to build a common trust with the specialist, ensuring he's not in the dark about what the company is telling the Street,' says Coufos. In fact Spear Leeds specialists are encouraged to attend clients' investor events.
In today's increasingly volatile market, the role of the specialist is one of the NYSE's key selling points when approaching prospective listings. 'The specialist provides an orderly market, becoming involved when one side or the other - buyer or seller - is missing. By being the buyer or seller of last resort, we provide needed liquidity for the stock,' Coufos explains.
The NYSE has been studying stock trading patterns and shareholder base profiles of companies before and after switching to the NYSE, with the help of Thomson Financial Investor Relations. While the results of the study have not been released yet, the Big Board's Catherine Kinney says it shows an improvement in market quality for newly listed companies.
When all's said and done, the sheer brand power and visibility of the NYSE still hold tremendous sway over companies considering the switch. Qwest, for example, benefited from the 'advertising muscle' flexed by the NYSE to trumpet the new listing, as well as the listing ceremony itself. In fact, it's said that the opening bell at the Big Board is the most watched daily event on television. The clincher, Qwest CEO Joseph Nacchio has admitted, was the single letter 'Q' as the stock's trading symbol. It's no secret that the NYSE had the letters 'M' and 'I' locked up waiting for two more of Nasdaq's jewels.
The next issue of Investor Relations will look at the details of specialist selection and listing.