In December 2017, Xero Limited (Xero) made a surprising announcement that it will delist its shares...

In December 2017, Xero Limited (Xero) made a surprising announcement that it will delist its shares from the New Zealand Stock Exchange (NZX) at the end of January 2018. On February 02, 2018, Xero was delisted from the NZX to trade solely on the Australian Stock Exchange (ASX). Being one of the star performer in NZX, the announcement is a bitter pill to NZX and a very disappointing if not disturbing development in capital market in New Zealand.

What is the impact of Xero’s delisting on:

A. Chief Executive Officer of Xero, Rod Drury who, owns 40% equity shareholding in Xero

at the time of announcement;

B. Milford Asset Management who owns $10 million of Xero shares in a $293m passive

fund that tracks the NZX50 at the time of announcement;

C. Minority shareholders who owns less than 5% equity shareholding in Xero at the time

of announcement; and

D. The NZX itself and the capital market in New Zealand in general

Solutions

Expert Solution

a) Effect of Xero’s delisting from NZX on the CEO, Rod Dury is that the shareholders of the company will lose their faith on the CEO. The decision to delist the company from NZX is a shock to the shareholders of the company in New Zealand. It will create a disappointment in their minds and he may be removed from his position as CEO. In reality, the decision was taken without a shareholder voting so they did not take the viewpoint or the opinion of the shareholders into consideration. Rod Dury is actually steppig down as the CEO of the company and Steve Vamos is the new CEO of Xero.

b) Milford Asset Management will lose lot of money as the sudden decision of delisting the company from NZX will lead to a fall in the share price of the company. The fall in the share price will reduce the value of the shares held by Milford Asset Management. They will now be forced to sell these shares at a low price.

c) Minority shareholder with less than 5% shareholding will not be affected much as they have only a small portion of the company’s shares.

d) The NZX will be badly affected by the delisting of one of its star performers as the value of the share market on the whole will be affected. The share market will have a fall in its index value. The income from listings may reduce and in future new companies might not be interested to be indexed on NZX as a star performer has left.

jeff jeffy answered 1 year ago

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