The publisher of one of the UK’s best-selling newspapers, the Daily Mail, may find itself ejected from FTSE’s global indexes in five years’ time if it does not change its shareholder structure.
FTSE Russell, the index business owned by the London Stock Exchange, said yesterday it would introduce a new requirement for developed market companies listed in its indexes to have more than 5% of their share-voting rights in the hands of independent shareholders.
DMGT, the publisher of the Daily Mail, is one of the few UK companies that will fall foul of the new index rules, which are being introduced following the controversial initial public offering of Snapchat parent Snap earlier this year.
In March, that company listed $3bn’s worth of shares with no voting rights at all, leading FTSE to announce it would put its inclusion in its indexes on hold while it consulted with investors. It confirmed yesterday that Snap will not be part of any FTSE indexes.
Chris Woods, head of governance at FTSE, said: “Snap’s IPO was the catalyst. We’d not seen this before: a company where the only share class was non-voting. We had views expressed to us by our index users that this set a dangerous precedent.”
But FTSE’s new rule will also capture DMGT, which is controlled by the British aristocrat Viscount Rothermere. It has an unusual dual-shareholding structure split into voting “ordinary” shares – which account for 5.5% of the company – and non-voting “A” shares make up 94.5%.
While the Rothermeres’ family trusts own all of the voting shares, about four-fifths of the non-voting shares are held by outside investors, according to analytics firm FactSet..
Despite the company’s £2.2bn market capitalisation, it was excluded from the FTSE 250 mid-cap index in 2012 as a result of a previous decision by the UK listing authority to exclude non-voting shares, with FTSE following suit.
But the publisher remained a member of FTSE’s All World index, a status now also in doubt. Its position is under threat alongside 36 firms included in FTSE’s US-focused Russell 3000 index.
Membership of indexes is usually seen as positive for companies’ share prices, as index-tracking funds —which account for an increasingly large portion of world markets — automatically buy their shares. Index exclusion thus removes one important prop from companies’ share prices.
Woods said: “This is not limited to FTSE’s indexes, it’s a universal issue that has got a lot of attention around the world. It’s been an interesting exercise; UK investors are very much in favour of the principle of ‘one share, one vote’ whereas in other countries there are other perspectives, with investors prioritising access to a wide pool of securities.”
Woods also made clear that companies that are already members of its indexes, unlike Snap but like DMGT, will be subject to a five-year “grandfathering” period, giving companies until September 2022 to make changes to their capital structure if they wish to continue in the index.
Neither DMGT nor Snap responded to a request for comment in time for publication.