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Fare thee well, Polycom

Tel Aviv cheered when it came. It isn't sorry that it's leaving

On February 13, 2000, the Tel Aviv Stock Exchange happily announced that U.S. company Polycom (Nasdaq:PLCM) had decided to dual-list for trade.

Polycom, a company trading on Nasdaq at a market cap of $2.5 billion, was the first purely American company to list on the Israeli exchange, after 14 Israeli companies elected to take advantage of relaxed dual-listing law.

Eight months later, Polycom bowed out. The local market was not surprised by its move, knowing well why it had listed in the first place.

Unlike Israeli companies listed on Wall Street, Milpitas-based Polycom did not come to Tel Aviv in order to boost negotiability or to gain home-turf advantages. It came in order to avoid publishing a prospectus and periodic announcements in Hebrew.

In December 2000 Polycom acquired Israeli firm Accord Networks (Nasdaq: ACCD) for about $339 million in stock. Under Israeli law, the transaction required Polycom to publish a prospectus in Hebrew, as must any firm buying an Israeli company with more than 35 Israeli shareholders.

By registering for trade on the TASE Polycom could circumvent the law, by exploiting regulations facilitating the dual-listing of companies in Israel and Wall Street. For such companies, the Israeli securities authorities accept documentation in English, prepared for the U.S.

Listing and delisting were not hard to do. Polycom may have planned its stint on the TASE to be short, despite its denials. Put otherwise, would it have listed if not for that pesky Hebrew documentation requirement?

What's for sure is that Polycom wasn't a hit.

• It never won analytical coverage. The press couldn't have cared less.

• During its 8-month stint on the TASE, transactions in its stock were recorded on only 13 trading days.

• On five of those 13 days, its share price moved by more than 20%.

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• The entire volume of trade in Polycom stock was NIS 223,000, for the whole eight months.

• For four moths from May 2 until September 13, there was not a single transaction in Polycom stock.

• Its daily turnover on Nasdaq averages $60 million.

Another salient fact:

• Polycom's weight on the Yeter broad-market index was a massive 20%.

Buying Polycom stock in Tel Aviv conferred no advantages for investors. They would have to pay tax on gains not applicable to gains from other stocks, for one thing.

Also, Israelis don't know the company. And why would foreign investors buy its shares here and get stuck with them? Nor could arbitrage players do anything, given the paucity of transactions.

By the way, although Polycom's market cap would have justified its listing on the top-cap Maof-25 index, it stayed in the broad market index because of tax issues and because it didn't meet negotiability criteria ¿ to make the Maof, a company must be among the 200 most negotiable stocks on the TASE.

Interestingly, while Polycom fluctuated violently on Nasdaq, it didn't budge in Tel Aviv because of its non-negotiability. Then, when somebody finally closed a transaction in Tel Aviv, it might be at a change of tens of percent.

Thing is, Polycom's weight on the Yeter index was an elephantine 20%. So when the share finally went somewhere, it dragged the whole index in its wake. For instance, on March 29, Polycom stock sank 35%, which pulled down the Yeter index by 7%.

The Yeter lost only 12% from the beginning of the year. Its performance was strongly affected by the behavior of Polycom stock.

It didn't stay long, but its effect was strong. Some locals may mourn the lost prestige of having a purely American company on the TASE screens. But they should not be sorry as the bull ambles out of the china shop.