Auto Giant Begins Trading Today in New Stock Format
NEW YORK — The new DaimlerChrysler, the global auto giant created by the merger of Daimler-Benz and Chrysler last week, will begin trading on Wall Street today amid more than usual fanfare for a new stock listing.
Not only did the deal create an international powerhouse in autos, but it has resulted in a new kind of borderless security--the “global share.”
The stock begins trading today worldwide, including on the New York Stock Exchange, under the ticker symbol DCX.
The Big Board contends that the global share is a cheaper and more efficient alternative to American depositary receipts, the form in which most foreign securities now trade in the United States.
In “when issued” (pre-listing) trading on Monday, DaimlerChrysler shares closed at $84.31, up $4.81.
What will this new form of stock mean for investors? Here is a look at the differences between ADRs and the new global share as represented by DaimlerChrysler, plus some other issues raised by the new stock format.
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Question: How does the DaimlerChrysler global share differ from an ADR?
Answer: Under an ADR program, when a U.S. investor orders stock in a foreign company, the shares are deposited in a custodial account in a U.S. bank such as Bank of New York or J.P. Morgan & Co. The custodial bank then issues ADRs--denominated in dollars--representing the number of shares purchased.
While the shares are on deposit, they are no longer available for trading in the company’s home country. If the investor sells the ADRs to an overseas buyer, the ADRs are converted back into ordinary or “local” shares and released from the custodial account.
But DaimlerChrysler’s global shares won’t undergo any such conversion. A share purchased on the NYSE may be sold directly to a German buyer in Frankfurt or a Japanese buyer in Tokyo, for example.
The shares will begin trading officially today on 19 exchanges in North America, Japan and Europe.
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Q: What difference does it make to the investor?
A: The NYSE contends that the new stock format will improve liquidity--or ability to find a buyer or seller without a major share-price sacrifice--over the ADR share format. But opinion is split on that point.
From a transaction cost standpoint, individual investors probably won’t notice any difference because, for a small transaction, the stock transfer fees charged by German and U.S. “clearing” firms are about the same as handling fees charged by custodial banks for ADRs.
Institutional investors, however, may realize some savings, because custodial fees may be higher than clearing fees on larger trades.
The difference may be modest, “but institutional investors don’t take even small costs lightly,” said Georges Ugeux, NYSE executive vice president/international.
For whatever reason--liquidity, price or some other factor--institutional investors have tended to buy foreign stocks in their native markets rather than in the United States via ADRs. So the new global share offers them an alternative.
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Q: How many DaimlerChrysler shares are there, and who owns them?
A: U.S. investors--mainly former Chrysler shareholders--currently own about 44% of the 1 billion total shares worldwide. The shares will be denominated in dollars when traded here, in deutsche marks in Germany, yen in Japan, and so on.
Dividends, paid once yearly, similarly will be paid in dollars to U.S. shareholders.
The new global shares will represent “identical security to all shareholders worldwide,” the NYSE says, and will allow U.S. retail investors to have the same U.S.-style stock certificate as they would have with the old Chrysler shares.
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Q: Will the company’s earnings be reported in dollars?
A: As with all NYSE-listed stocks, DaimlerChrysler must report its earnings in dollars and according to generally accepted U.S. accounting principles.
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Q: Besides potentially helping institutional investors, why did DaimlerChrysler want to create a new kind of share?
A: The company badly wanted Standard & Poor’s to include it in its S&P; 500-stock index--as “old” Chrysler stock had been--because that would automatically boost demand for the shares.
Index mutual funds, which try to mirror the S&P; 500 by buying shares in its component issues, are natural buyers, but other institutions also sometimes buy stocks just because they are S&P; 500 members--and, conversely, avoid ones that aren’t.
But as a matter of policy, S&P; does not include ADRs in the index. DaimlerChrysler had hoped the global share format would make that issue moot. However, S&P; decided to exclude DaimlerChrysler from the index anyway on the grounds that it is a foreign-headquartered firm.
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Q: What’s in the new global share format for the Big Board?
A: Through ADRs, the NYSE handles about 10% of all trading in NYSE-listed foreign stocks, Ugeux said. But U.S. investors--mutual funds, pension funds, individuals and so on--control far more than 10% of the total shares of those stocks, via shares traded in the native markets.
The Big Board wants to make it just as easy and cheap for investors to buy foreign shares here as in the issuers’ local markets, so that the NYSE can grab a larger slice of global trading in such stocks.
The Big Board next year will begin a pilot program to expand the number of NYSE-listed foreign stocks trading as global shares. About 12 companies, so far unidentified, will be included in the program, probably beginning next summer.
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Q: What was the biggest challenge in creating the new shares?
A: According to Ugeux, it was working out the technical details to ensure that the shares would trade smoothly across borders. That required negotiations involving the Securities and Exchange Commission and other regulators as well as the two clearing firms, Depository Trust Co. in the United States and Deutsche Borse Securities in Germany.
The clearing firms make sure that the shares are properly registered and that dividends and voting rights are properly allocated.
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DaimlerChrysler Snapshot
Details of the new DaimlerChrysler, which resulted from the merger of Chrysler Corp. and Daimler-Benz:
* Headquarters: Stuttgart, Germany, and Auburn Hills, Mich.
* Industry rank: World’s fifth-largest auto company by vehicle sales; world’s fourth-largest company by total sales
* Products: Cars, light and heavy-duty trucks, buses, helicopters, jet aircraft, aerospace parts, trains, satellites, financial services, telecommunications, automotive electronics
* Leaders: Co-chairmen are Juergen E. Schrempp, former chairman of Daimler-Benz, and Robert J. Eaton, former Chrysler chairman
* Revenue: $132 billion in 1997 ($22 billion was non-automotive)
* Employees: About 421,000, of which 228,000 are in Germany, 137,000 in North America and 56,000 elsewhere
* Vehicle sales: About 4 million cars and trucks in 1997 (2.9 million Chrysler products; 1.1 million Daimler-Benz)
* Value of merger: $32.8 billion
Source: Associated Press
