‘We felt that there was a substantial amount of untapped potential out there,’ says Jim Jarrett, vice president of investor relations at Intel.
No, he’s not referring to some mysterious alien encounter, although for many US companies it might be viewed as just that. Nor is this the elusive Intel outside that we’ve all been wondering about. Jarrett and his crew in Santa Clara, California have been ‘out there’ trying to boost the company’s foreign shareholding base by targeting non-domestic institutions.
For Intel that means knocking on the doors of fund managers in Europe and Asia. Conversely, for the UK-registered pharmaceutical giant SmithKline Beecham it means doing the rounds across the US. Ignore recent reports that the company is relocating its corporate headquarters to the States, says SKB: ‘Incorporation in the UK makes sound commercial sense.’
Needless to say, these two companies have very different stories to tell and have taken different approaches. But there are some neat similarities here, too. Both have initiated international institutional targeting programmes over the last year or so – with relative degrees of success. Both had the aim of reaching out to the ‘untapped potential’ of growing international portfolios. And both want a more diversified, international shareholding base that better reflects their global operations and revenue. By the way, that diversification also means things could be easier in times of trouble.
Out With the Old
Intel began its targeting programme after a reorganisation of the IR department two years back. Out went the old approach of two people both splitting their time between the buy and sell-side; they began to concentrate their attentions solely on the latter group. In came five new faces to give extra fire power to the buy-side attack. Three of those staff members now deal solely with institutions in the US – split into manageable regions; the other two are out on the road in Asia and Europe, respectively.
‘The objective here was to do a better job of presenting Intel to the ultimate investors, while continuing to stay focused on the sell-side as well,’ says Jarrett. He explains that the company had changed dramatically from the mid-1980s, when it was primarily a memory producer and manufacturer of commodity products, to become the world’s largest manufacturer of microprocessors. Along with that change came a dramatic improvement in performance. And that story needed telling. Many investors didn’t understand the new Intel and were still playing it as a cyclical.
‘What we thought was: let’s get out on the road, let’s focus on education, go to the institutions and run a targeting programme looking for those who own technology companies but don’t own Intel,’ says Jarrett. ‘Europe and Asia were big areas of opportunity as they were far from the industry and it was more the venturesome investor who was rolling in a small proportion of their portfolio for us. They were finding us, we weren’t finding them. We wanted somebody out there on the road telling the story.’
Air Miles
For the European investors that story-teller is Mary Ellen Clifford. Since joining the IR gang from Intel’s treasury department just over a year ago she’s been spending between six and eight weeks a quarter in one-on-one’s and presentations across Europe. That’s a lot of air miles.
We’re not just talking London, Edinburgh, Zurich, Geneva and Paris, either. Where there are institutions with an interest in high-tech companies, Clifford has been explaining Intel’s figures and strategy. Amsterdam, Stockholm, Brussels, Milan, Madrid, Barcelona. The list goes on. Her travels have even allowed time for a recent stop-off in Tel Aviv where there were almost a hundred investors keen to get inside Intel. ‘If I’m leaving a city out I don’t mean to. There’s been a big crowd in almost every city we’ve gone to,’ she says.
Clifford recalls having a week to arrange her first set of meetings after starting her investor relations role, before getting on a plane over the Atlantic. She’s used some outside help since the programme began – Technimetrics for databases; Brussels-based IR agency Kuhn Partners and various brokers to help set up meetings – but is increasingly dictating the programme herself. Intel believes that the selection of targets is best done by its in-house IROs, affirms Jarrett.
It’s a fairly classical targeting programme with a rolling top 25 list of institutions to visit. These are typically those not in the stock who have other high-tech holdings; those with a small position and the resources to buy much more with the right type of portfolio turnover statistics; and those with holdings in company’s of a similar financial profile to Intel.
Clifford says she’s constantly looking at the size of US dollar portfolios under management. If she considers an institution to be underweight she will put them on her target list. She adds that she tries not to exclude anyone – and that means providing a good continuing flow of information to those who already have a position in Intel but are not actual targets. ‘We want them to stay and grow,’ comments Jarrett.
Top Guns
‘I attempt to bring in senior management as often as I can,’ she explains at the end of a busy day of presentations and one-on-ones at the Robertson Stephens & Co International Investors’ Growth conference in London. ‘This trip I’m bringing in Jim and we’re covering five cities. I’ve brought in almost every senior vice president. Andy Grove, our president and chief executive, came over last October. We’ve had almost every member of the executive management team in Europe.’
And that top management support has been critical to the success of the programme. As Jarrett points out, investors are always pleased to talk to a Mary-Ellen Clifford, they’re always pleased to talk to a Jim Jarrett – but there’s nothing quite like talking to an Andy Grove.
So how successful has it been? In late 1992, foreign holdings in the company were ‘very small’ says Jarrett – under 2 per cent. Both Jarrett and Clifford are reluctant to put a definitive figure on what those holdings have risen to since that date, although they kick around 6 per cent for a while. The reason for their reluctance? ‘We don’t know to what extent we’re capturing the holdings effectively because of the difference in reporting requirements to the US,’ says Jarrett. ‘It’s a bit more difficult to really get an accurate read on the figures.’
Clifford is keen to have her say, though, and suggests it’s higher than the hard data. When she is pressed later on she reveals that European holdings could be as high as 10 per cent. ‘But we don’t have any way of knowing for sure,’ she adds. The department attempts to get round those problems by regularly surveying institutions with the help of Kuhn Partners; enlisting the aid of Morrow & Co to do analysis on depositary trust records; and picking up anecdotal evidence as they talk to people.
‘You have to be able to withstand a lot of jet lag,’ laughs Clifford, when asked if she enjoys her work. ‘You have to believe in the company you’re doing this for. But it’s very rewarding. When you go into an institution which knows little about Intel and then leave with them excited about the story it’s all worthwhile.’
Half and Half
SmithKline Beecham also had a new story to tell to those on its US target list. At the time of the SmithKline and Beecham merger in 1989 the UK:US shareholding split was 51 per cent to 49 per cent. In the wake of the merger, with a new SmithKline Beecham ADR trading on the New York Stock Exchange, the US holdings spiralled downwards to reach a low point of 23.6 per cent in late 1994.
Dick Williams, director and vice president of IR in the US, and Philip Ward, director and vice president of IR in Europe, point to several reasons for that decline. Immediately after the merger several US funds got out of the stock because it was not in the index in the States or because they had restrictions on ADR holdings. Add to that the fact that – despite the company’s attempts to position itself as a transnational company – SmithKline Beecham was a UK-registered company reporting in sterling to UK accounting rules and that wiped out a further bunch of US institutions. The expiring of the Tagamet patent in late 1994 also loomed on the horizon.
Ward recounts that the company made several attempts during the early 1990s to turn around the US funds running out of the stock. These included reporting on a quarterly basis backed up by conference calls; adapting earnings releases to a more US-friendly form; releasing results at a convenient time of the day for the US; pioneering the use of simultaneous videoconferencing; and sending senior management over to the States on a more frequent basis.
All was to no avail. Ward believes the continued US rush out of the stock was a reflection of the institutions’ concerns that the company would not be able to weather the expiring of the Tagamet patent.
Brick Wall
All this time Dick Williams kept up a relentless information flow to US institutions. Williams had been in charge of investor relations at SmithKline before the merger so had good experience to fall back on. Nevertheless, he admits that during the difficult period, although he didn’t actually bang his head against a brick wall ‘that doesn’t mean I didn’t want to do it’. Williams continues: ‘A lot of it had to do with the development of a SmithKline Beecham strategy. We were talking about new products but there were no new products there at the time. It was all theory.’
By late 1994 things began to get better. New products were in the pipeline. ‘Once we showed that we could actually grow through the loss of the patent the tide began to turn,’ says Ward. Now it was time for a targeted approach. Williams enlisted the help of Georgeson & Co in early 1995 to help him draw up a list of US funds which might be receptive to the new story. ‘I think up until that point we had more of a shotgun approach which had met the needs of a general investment audience,’ he notes.
Georgeson initially sat down with SKB management to get an idea of the strategic plan of how the company was expected to evolve. Ernie Sando, senior managing director at Georgeson, believes this is vital to the success of any targeting campaign. ‘Institutions aren’t buying on previous performance but because they’ve been convinced that the company is moving forward,’ he says.
A whole host of investment criteria were added to the strategy information to help determine the most likely prospects. For SKB at that point last year the most favourable investment style was likely to be that of a growth investor, says Williams. The targets were also screened for current portfolio weighting; whether they were invested in peer companies or those with a similar financial profile; and to check they had a low to moderate turnover of stock.
Armed with that information and these criteria, the Georgeson database computers were set to work to draw out fund managers believed to be the most likely buyers. The result was a list of targets which was whittled down to a top 100 by getting on the phone to check out the investing story in more detail. ‘Computers can’t account for personal characteristics,’ says Sando. ‘We need to check if the investment philosophy is still the same and the fund really is a well- qualified target.’
Good Arrows
Williams’ aim was to make contact – if possible in a one-on-one situation – with all the names on the top 100. And that meant getting out on the road. He spent a large part of last year whizzing from coast-to-coast with numerous stop-offs in-between.
The IR team tried to position the company as a transnational play – as they continue to. ‘We’ve been trying to target the US-based domestic and international investors. The challenge is to ensure that the US domestic institutions see us as a US company and compare us to peers in the States,’ says Ward. Williams adds that the company wants to look more US to US investors but wants them to understand that it is a global play.
As with Intel, Williams stresses two points which he thinks were crucial to the success of the targeting programme: the heavy involvement and support of senior management; and not letting those institutions already invested but not on the target list out of the information sights. The latter group were often also present at lunch meetings and presentations and had no reduction in the normal information flow they expect from the company.
‘SmithKline Beecham gets high marks from the financial community for a management team which is very knowledgeable of changes taking place in the global marketplace,’ says Williams. ‘They tend to be good spokespersons for the industry. We wanted to capitalise on that. If the market views them as experts then let’s get them out there and see if they can have an impact.’
And did they have an impact? ‘I was waiting for you to ask that,’ says Williams. By year end 1995, US holdings had risen back up to 30.7 per cent and by April of this year to 33.1 per cent. Of the main target list last year, 36 per cent were buyers; 50 per cent made no change; and 14 per cent were sellers. Of those institutions not targeted, 67 per cent were sellers; 4 per cent made no change; and 39 per cent were buyers.
Those figures, of course, take no account of the level of buying and selling. Still, it is evidence of a good story, well told and to the right people. The introduction of a unified share structure earlier this year has continued to make things easier for US institutions looking to invest in SKB and the targeting programme is continuing.
Don’t expect similar results two years in a row, though, warns Williams. ‘We’ve had our big hit.’
