Another heavyweight ready to exit Irish exchange

Stock exchange: If the wheels set in motion yesterday run according to plan, First Active will delist from the Irish Stock Exchange in early 2004, just slightly more than five years after its triumphant initial public offering.

Its exit after such a short tenure on the ISEQ can be viewed in one of two ways, depending on the perspective of the observer.

On the positive side, First Active will symbolise all that is good about listing in the first place: it has used its position on the market as the basis for a successful growth strategy and, at the same time, has created impressive value for its shareholders.

Looking at the same situation from the opposing perspective however, it can become a little more grim. First Active yesterday positioned itself as the latest in a line of more than 10 companies, from Eircom to Conduit, that have for one reason or another delisted from the Irish exchange over the past couple of years.

Over the same period, none has joined the index.

Prof Liam Gallagher, who teaches economics and finance at Dublin City University, says such departures have created problems in most small stock markets with any new listings that do occur gravitating towards busier indexes such as London or Frankfurt.

He also points out that market consolidation of the type seen yesterday will be more likely at the bottom of an economic cycle, when companies are considered to offer acquisition value.

The corollary of this is that activity on the listings front should pick up again as the economic cycle begins to turn again.

And just as every departure will have an impact on a small market such as the ISEQ, any new addition will automatically make its presence felt too.

"The Irish market is small enough for any move to have significance," says Prof Gallagher.

It could be argued that the departure of First Active is doubly significant for the Irish market since close to half of the index is concentrated in financial stocks. While First Active is a small part of this (less than 2 per cent of the overall market), its takeover by an international player automatically raises questions about the future for other Irish banks.

Anglo Irish has, for example, long featured on lists of possible acquisition targets, while either AIB or Bank of Ireland could in theory be useful strategic buys for larger foreign institutions.

Mr Brian O'Kelly, managing director of Goodbody Corporate Finance, believes the impact of the First Active departure should not be overestimated, aside from taking account of the return it is delivering for a largely retail shareholder base.

The bank has, he argues, long been seen as a probable takeover target and, with takeover protection expiring just weeks ago, the timing of the deal is not surprising.

Mr O'Toole is on the side of the optimists on the deal's impact on the exchange, describing it as "a success story for the Irish market".

"If First Active had stayed mutual, it wouldn't have created this shareholder value," he added.