Public listed companies leaving the stock exchange

pledgeX

I’ve just read this article about public companies being bought out and leaving the stock exchange.

What would happen to the market if this practice continues? What happens to those invested in (for example) FTSE tracker funds if there’s no more companies left in the FTSE?!

Eco_Miser

Since the FTSE 100 is always the top 100 companies traded on the London Stock Exchange, for the FTSE to be empty, there would have to be no publicly listed companies left in the UK, and capitalism would have ended.
On the upside, the shareholders of all those bought-out companies would have received massive payouts.

bowlhead99

If no companies are listed in London then there won't be an index of London listed shares for the fund to track.

At the moment, there are a couple of thousand companies listed in London so if one gets bought out or merged, another one will get promoted into the 100 or 250 etc. A tracker fund (or non-tracker fund) which held the share which was bought out, would receive the sale proceeds from the buyout and would use the cash to buy more other shares making up the 'new' index.

Of course, if there were no shares at all remaining listed on the UK stock exchange, and the index ceased to exist, the tracker fund would not be able to redeploy its spare cash; it would all be spare cash, and they would wind it up, returning the cash to the owners of the fund.

But if there were no shares left with a primary listing on the London stock exchange, you as a former investor of the tracker fund wouldn't be able to invest instead in an actively managed fund which had a strategy of buying stocks with a primary UK listing, because there wouldn't be any. You would have very limited choices in buying individual public stocks yourself either; and would have to look on foreign markets instead.

Thrugelmir

Eco_Miser wrote: »

On the upside, the shareholders of all those bought-out companies would have received massive payouts.

Companies are delisted for a variety of reasons. Not all are bought out.

Malthusian

pledgeX wrote: »

What happens to those invested in (for example) FTSE tracker funds if there’s no more companies left in the FTSE?!

The funds would eventually be unviable (as investors stopped bothering with the increasingly obscure index, or the fund had too few companies in it to meet statutory diversification requirements). They would either be wound up and return cash to investors, or, more likely, merged into a global tracker run by the same fund manager. (Even though a global tracker isn't what investors signed up for, the advantage is that it avoids an involuntary CGT bill for the investor.)

Investors would only lose money if the reason for the delisting was the company declining or going bust, and as Eco Miser says, all the companies in the FTSE 100 going bust requires economic apocalypse, in which case nobody will care what happened to their tracker fund. If they were bought out, then the tracker will receive cash and will reallocate the cash to the rest of the market. This continues until the point of unviability.