The junior market's closure could cause problems for companies such as Arsenal FC.
What happens when a stock exchange closes down?
We'll find out later this year, because PLUS Markets Group (LSE: PMK) today announced that it is to close down its London-based junior stock exchange.
PLUS has lost money for six years in a row, including a loss of £5.8 million in 2010 on revenues of £3 million. In short, PLUS -- which is itself quoted on rival junior market AIM (the Alternative Investment Market) -- has been less than a success as a business.
Hence, the board of PLUS raised the 'for sale' sign on 3 February, putting the entire group up for offers. Alas, after three months of searching for a saviour, the PLUS directors have admitted defeat. Having failed to attract an acceptable offer during its formal sale process, PLUS is to close down.
As a result, the group is commencing an orderly run-off of its business over the next six months. What this means is that companies with shares traded on PLUS have until November either to delist or to relist their shares on another exchange, probably on AIM or the main market.
Predictably, this announcement caused shares in PLUS to crash. As I write, they trade at a tiny 0.213p, down almost four-fifths (78%) this morning. This price values the group at around £822,000, but it is questionable whether PLUS shares now have any tangible value, given the group's dire financials.
What now for Arsenal and Adnams?
Although the PLUS Stock Exchange was launched as a modern, high-tech exchange, it suffered from poor economies of scale. With limited size and reach, it really needed a strong partner to grow and become profitable. Playing third fiddle to the main market and AIM, PLUS failed to reach its full potential and has become another victim of the 'creative destruction' that is market capitalism.
Looking ahead, the big question is what will happen to the 156 companies listed on PLUS-SX (which you can view here)? Although most of these are micro-cap tiddlers worth under £10 million, there are a few well-known names among the PLUS quotes.
For example, the biggest PLUS-quoted company is Arsenal Holdings, owner of the football club nicknamed 'the Gunners', which finished third in the Premier League yesterday.
Arsenal has a market value of over £1 billion, so would join the FTSE 250 mid-cap index were it to switch listings to the London Stock Exchange (LSE: LSE). Then again, Arsenal's majority shareholders -- including US billionaire Stan Kroenke and Russian oligarch Alisher Usmanov -- are almost certain to take the club private again. Also, it costs £17,000 to buy a single share in Arsenal, so this isn't a stock for small investors!
Another well-known brand listed on PLUS-SX is Adnams, the award-winning brewer, which has been brewing ale in Suffolk on a site in use since the 14th Century. With a market capitalisation of just over £22 million, Adnams is much smaller than Arsenal, but could continue life as a listed company by switching to AIM. Currently, a single share in Adnams costs £80 to buy.
Goodbye to PLUS?
As for PLUS itself, with high operating costs and a limited cash balance, its future looks grim. Hence, aided by City regulator the Financial Services Authority, PLUS is almost certain to vanish within the next half-year.
PLUS assets are likely to be sold off piecemeal and, therefore, might produce a small cash return for its long-suffering shareholders. Also, PLUS could yet be saved by a last-gasp bid or injection of capital, so please watch this space...
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Cliff does not own any of the shares mentioned in this article.