By Susan Taylor
OTTAWA (Reuters) - Canadian companies planning a public offering should look beyond over-regulated U.S. exchanges to a junior market in London that has a "special little upside," storied technology executive Terry Matthews said on Thursday.
The veteran entrepreneur, whose reputation was forged on founding such Canadian technology pioneers as Mitel and Newbridge Networks, said London's Alternative Investment Market (AIM) has a key tax advantage over Nasdaq and the New York Stock Exchange.
"If you invest in a company on the AIM market and you hold the shares for three years, there's no tax on the gain. That's a special little upside that I like. And I'm not the only one," Matthews told technology executives in Ottawa. "We should seriously think about such a thing in Canada."
Regulated by the London Stock Exchange, AIM says it is directed at smaller companies, with a "flexible regulatory regime" and access to a wide capital pool.
Matthews' Ubiquity Software Corp., based in Cargill, England, started trading on AIM late last week, raising $36.7 million. That followed the market debut of his Ottawa-based March Networks Corp. in April on both AIM and the Toronto Stock Exchange, raising C$70 million ($55 million).
The market performance of those firms augers well for the much-anticipated initial public offering of Mitel Networks, Matthews told reporters after his speech. After taking Mitel public in the late 1970s, he left in 1985 only to acquire its office phone system business and name in 2001.
While Matthews said he would consider a "big enough offer" for Mitel, his comments threw cold water on speculation it could be a takeover target for Nortel Networks Corp.
"If you take a look at my history over the last 20-odd years, typically it's to build companies up, make them successful, take them public, raise the profile, grow them even more," he said. "Don't expect anything new in the way of a departure here."
If recent history is any indicator, Mitel could end up on Toronto and AIM, rather than a U.S. exchange.
U.S. markets are less attractive due to "punitive" Sarbanes-Oxley regulations, said Matthews, whose holding company Wesley Clover has a portfolio of 16 high-tech firms, golf courses and resorts.
The accounting rules require company managers to explain how they keep their financial house in order and get their outside auditors to review those explanations and comment on them.
"I think it's the dumbest piece of legislation I've ever seen in my life ... A massive agreement that says I am honest about all the following things. But here's the interesting thing: if you were dishonest you'd sign it anyway," he said.
U.S. exchanges are also "discolored" for investors who took a bath when the tech bubble burst in 2001 and are still feeling the sting, he added.
"Nortel dropped from C$125 to 50 Canadian cents," Matthews said. "If it was the front of a cliff and you were in a car, you'd be dead."
($1=$1.27 Canadian)
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