British American Tobacco is facing pressure to move its primary listing to New York after a top-five shareholder said it “makes no sense” for the cigarette maker to remain on the UK stock market.
Rajiv Jain, founder of $92bn US-based investment firm GQG Partners, told the Financial Times that he had urged the FTSE 100-listed owner of Lucky Strike and Dunhill to time the 1912 London listing.
BAT is “an orphan in Europe”, said Jain, who this month invested $1.9 billion in four Adani Group companies, as the Indian conglomerate suffered a short-seller attack. “Main ownership basis [of BAT] has disappeared. There is no point for them to be there.”
He pointed to the US-centric nature of the FTSE 100 company’s business and the valuation gap between BAT and its US-listed peer Philip Morris International, where GQG is a top-10 shareholder, asking: “What does it mean to be listed in London? ?”
The lure of higher valuations and a deeper pool of investors in the US has led to a spate of departures from London. This month the Cambridge-based chip designer arm rejected a UK listing in favor of New York while CRH, the world’s biggest building materials company, became the latest business to pull out of London.
They follow in the footsteps of Flutter, the world’s biggest gambling group, whose shareholders will vote on a secondary US listing in April, possibly with an eye to switching its primary listing. Shell also considered switching to a New York listing, the FT reported last month, though it ultimately opted for a single listing in London.
The extended debate on the merits of leaving the London market underlines the UK’s difficulty in attracting and retaining companies and reflects how domestic investors have increasingly shunned its domestic equity market. Holdings of UK-listed companies by British pension and insurance funds have fallen from nearly half of their portfolios to just 4 percent over the past two decades, according to data from consultancy Ondra.
The US accounted for two-fifths of BAT’s £27.6bn in global revenue last year on a constant currency basis, making it the cigarette maker’s biggest market. BAT’s US subsidiary Reynolds owns the popular Newport and Camel cigarette brands, while BAT’s Vuse vape has a 41 percent market share in the e-cigarette category, according to Nielsen data.
Despite generating slightly more revenue and operating profit than Marlborough maker PMI last year, BAT’s valuation lags that of its New York-listed rival. On Wednesday afternoon, BAT’s market capitalization was £66.3bn, less than half the PMI’s £147.6bn.
Jain, who founded Australia-listed GQG in 2016, declined to elaborate on how BAT’s management reacted to the proposal from its fifth-largest shareholder.
However, he said “we are a large shareholder, so they listened to us and were not committed one way or the other”.
BAT has a secondary listing on the Johannesburg Stock Exchange.
A BAT spokesman said the company “does not comment on its engagement with shareholders”.
