Swiss firms rush to split shares
Swiss companies are taking full advantage of an expected change in the law, which will do away with minimum nominal share values. A present a share has to have a value of at least SFr10 ($6) but the new law will allow companies to value stocks at SFr0.01 if they wish.
The legislation will bring Switzerland into line with a practice that has long been established in the United States and is increasing in other parts of Europe. It is aimed at improving market liquidity and broadening a company’s shareholder base.
Most big companies are planning to change their capital structure in the next few months. The Basel-based pharmaceuticals giant, Roche, is planning to issue 100 new shares for each one now in existence. Novartis is suggesting a share split of 40:1 and Nestlé, Adecco, Julius Baer and Kudelski have all proposed 10:1 splits.
Many people are confused when a company splits its shares because they feel the value of their investment has changed but this is not the case. It simply increases the volume of shares on the market, lowering the face value of each one.
“It’s a purely mathematical way of recording company reserves,” says Bank Leu trader, Eleanor Charrez.
“In itself, share splitting doesn’t make a company or investor any richer or poorer,” adds Barclays stockbroker, Justin Urquart-Stuart. “What it does do is make the stock more liquid and more easy to trade. Switzerland has realised that to develop its market it has to encourage more liquidity and share splitting is a good way of going about it.”
The move to lower-denominated shares will also make it much easier for ordinary people to become shareholders.
“In the United States, around 60 per cent of people own shares and in Switzerland it’s only around 20 per cent,” says Charrez. “Making shares less heavy by splitting them will change attitudes.”
The shares of a company like Roche currently priced at around SFr16,000 will become a lot more accessible to middle-income earners once the split is carried out.
Share splitting should also draw in more foreign investment.
“There’s a great interest in Swiss companies but the size of the individual stock has put people off,” says Urquart-Stuart.
But even after the share splits have taken place, many Swiss stocks will remain top-heavy, and traders think there’ll be a move towards more share splitting in the future.
“In the US, anytime a company trades above a certain level, it decides to split and it could be we eventually move towards that kind of model in Switzerland,” says Urquart-Stuart.
Parliament has already approved the new law but it’s awaiting the expiry of a three-month period in which citizens may campaign for a popular vote on the issue. No such challenge is expected and the new legislation should come in to effect at the beginning of May.
by Michael Hollingdale
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