Question

Examine the annual report of Xero for the full financial year ended March 31, 2017 which can be downloaded in pdf format at: https://www.xero.com/content/dam/xero/pdf/Xero%20Annual%20Report%20FY17.pdf Read through numerous news articles on Xero’s delisting on online news at: https://www.stuff.co.nz/business/opinion-analysis/102002954/another-kiwi-icon-xerois-falling-into-australian-hands https://www.radionz.co.nz/news/business/345182/xero-challenged-over-quitting-nzsharemarket https://www.stuff.co.nz/business/industries/98702227/xero-to-delist-from-nzx http://www.zdnet.com/article/xero-reports-record-ebitda-as-it-prepares-to-delist-fromthe-nzx/ https://www.stuff.co.nz/business/opinion-analysis/98739945/delisting-debate-drownsout-planned-push-for-growth Answer these questions: A. What is the main motivation for Xero to be delisted from NZX? B. Will the delisting of Xero shares from NZX enhance shareholders’ value? Why? C. What are the measures that can be undertaken by NZX to ensure listed companies to remain listed on NZX instead of delisting? and D. What are the measures that can be undertaken by NZX to attract new companies to be listed on NZX?

Answer 1

A. Motivation of Xero’s delisting of listing on the NZX given by management:

- To access Large market.

- To Minimize Liquidity risk by creating a deeper market for Xero shares. This would mean investors who want to buy or sell Xero shares can do so in greater volumes and more easily.

- To Increase relevance to a more diverse range of larger investors

- To increase analyst and broker coverage will increase the company's profile among a wider range of potential investors globally

B) The move to access large market is an indicator that company will not be paying dividends, instead will use profits for investments and growth opportunities to drive long term value to shareholders. Historically, companies trying to access large markets have performed good after success in the home country. Initially the share felt because of surprise announcement but later recovered and had shown a small increase and analyst estimates on an average of 4-5% returns.

C) Measure NZX should take:

- NZX should explore benefits and risks (including in relation to ASX) and introduce a two–tier system.

- Spread requirement should not be altered: NZX decrease the spread requirement for premium issuers from 500 to a minimum of 300 and for standard issuers from 50 to a minimum of 100. Low spread requirements have an adverse impact on market liquidity.

- Premium issuers to have more directors on their boards in order to effectively drive performance and add value. The optimum board size should be determined by factors like the issuer’s size, nature and complexity of business

-The quality and content of disclosure should not be compromised in striving for flexibility in reporting

- Shareholders to retain some powers (Bonuses, compensation etc.) to hold directors accountable in carrying out their duties and responsibilities