After winning a Silver Anvil award for best IR, executives at Diebold are naturally pleased. In fact, IR for this company (pronounced Deebold – ‘Never say die,’ advises Donald Eagon, the company’s VP for corporate communications and IR) should be easy. After all, an investment in Diebold is safer than houses.
Approaching its 140th year making bank safes and locks, the company has kept up with the times by making ATMs and similar systems. But after realizing its range of shareholders made the company not-so-safe, Diebold launched a push to seek a new and diversified investor base. It was this successful campaign that yielded the coveted award, recognizing IR by a company with over $500 mn in sales, presented in June by the Public Relations Society of America.
Voracious Predators
After going public in the 1930s, Ohio-based Diebold used to see stability in overwhelmingly institutional ownership. But in 1990, when chairman Robert Mahoney called in Eagon to begin the company’s IR program, Diebold’s toughest safes could not have protected its $200 mn cash horde against the voracious predators who made Wall Street of that era look like Jurassic Park to nervous managements.
Back then, a mere ten institutions held over 50 percent of the stock, while institutions overall held more than 80 percent. Such an ownership structure had its problems. According to Eagon, ‘A big day on Wall Street as far as trading was concerned was around 40,000 shares out of 13 mn.’ Diebold could easily have been cast as the victim of Other People’s Money, at the mercy of a quick offer to the handful of institutions it would take to buy, loot and possibly close the company.
Chairman Mahoney had other ideas. He wanted the company to expand globally, and to improve its manufacturing base, which it was difficult to do with the century-old plant he had inherited. So the company’s IR program was one part of a major shake-up which saw Diebold use its cash reserves to invest heavily in new manufacturing facilities. Far from running up debt, it has been debt-free since 1992.
Diebold needed efficient IR to ensure its ambitious program was not interrupted. Eagon’s job was to set up a corporate communications division as well as the IR department. ‘My background is multifaceted in that I’m not exclusively an IR professional. From advertising and marketing I went to PR, and from PR to IR and finance.’
Back in 1990, the company only had two analysts following the stock, ‘and one hadn’t put anything in print for a year,’ says Eagon, whose first task was to find out exactly who held the stock. He reminisces: ‘When I first came, there were really no formal records of ownership, and there was no IR program.’ For help, he called in the Cleveland PR & IR firm of Dix & Eaton, which put Mary Dunbar on the account. She is still on it, providing an indispensable adjunct to the firm’s in-house resources.
The expanded new team did an IR audit of the books and decided to begin implementing a three-year plan in 1991. At every level, the program involved detailed targeting of investors and analysts. To reduce the vulnerability and volatility of the stock, the two investor targeting priorities were to grow the individual shareholder base to a level of 25-30 percent and to diversify the institutional holders.
‘The recommendation we sent to the chairman – and which was then taken to the whole board – was to get more float, to get some stock out there.’ There was no need for new capital so the recommendation was to split the stock whenever possible, and in the last five years Diebold has had four three-for-two splits.
To grow individual ownership, Diebold started up a Drip plan. Sandy Upperman, with Diebold since 1985, assumed the role of IR manager with a particular brief for the retail investor aspect. She has since become deeply involved in the National Association of Investors Corp (NAIC), and is on its Corporate Advisory Council. ‘It’s probably the single best way to build your individual shareholder base. You have to be willing to put a lot of time into it, but you can build a base of very loyal stockholders very quickly,’ she says. From a standing start, Diebold is now the eleventh most popular company with NAIC members.
To maintain that status quo, Upperman attends many NAIC investor fairs, while Diebold also uses junior staff members to go out and represent the company at these events. ‘What better way to prepare our company’s professional communicators than to allow them to go to NAIC functions and talk about the company?’ Eagon comments. Back at home base, both individual and institutional investors benefit from the IR department’s goal of always returning calls within 24 hours.
Previously, management had few programs to encourage employee share ownership. In contrast, to celebrate passing the $1 bn revenue mark recently, most of the 6,000 employees in the company were given options on 100 shares – exercisable in 1999.
Another way to reduce volatility is to canvass overseas investors. But pressures on time and personnel, and lack of European interest in US stocks, postponed that avenue of approach until recently. Now Diebold is combining IR and PR in twice-annual European tours to mirror its global market expansion. The investors they have culled from Europe are mostly from France and the UK.
Building Niches
Another priority of Diebold’s IR mandate was to build analyst coverage, and Eagon resolved to attempt to add at least two active analysts to the company’s roster each year. However, he had to confront a perennial problem with the category-minded researchers: ‘One of our big challenges was to build or find a niche. Generalists were very much attracted to us, but the sell-side firms are vertically-oriented, focused on specific industries. We found out very quickly that the only industry we could peg quickly was technology.’
Eagon admits that this was not really the most appropriate peg considering Diebold’s lines of business, but the strategy has worked to the extent that a dozen security analysts now cover the company. ‘I wish I could say we were lucky, but it was just a lot of hard work,’ he says.
To reinforce the NAIC program, Eagon’s team targeted retail-oriented sell-side firms in particular, and identified other industry categories that they thought could be reasonably pitched, such as office supplies or services as well as security, to get more coverage. They also found that good, small regional firms would ‘really do us more benefit than going to the big ones,’ and as a result focused on firms around the midwest home base.
As for the buy-side, Diebold sought investors which were ‘after growth first, then growth and value,’ and especially ones with sticking power. So they targeted investors which tended to hold stocks for a three to five-year period. One of the main tools Diebold used to build awareness of the rapidly growing company was a ‘data book’ – ‘We took ten years history and crunched all the numbers.’ Dix & Eaton’s staff included an ex-security analyst who helped the team gather information that analysts would want. And they even enlisted the help of actual analysts to compile the book, which could partially explain why the result is so well regarded by researchers.
Refusing to Shotgun
Targeting is the key element in Diebold’s IR strategy: ‘We really don’t shotgun. It’s a waste of money and effort.’ Two years ago it hired Kissel-Blake, a New York-based consultant, to help with the targeting effort. ‘We wanted a medium-sized firm that could devote the kind of time we wanted but with the wherewithal that we felt we needed; someone who could really quickly go at it when we made the phone call,’ says Eagon.
He says the in-house IR team encompasses everyone from the chairman to the CFO, to IR manager Upperman and Eagon himself. But he can call upon the resources of another dozen people if need be, as well as Dix & Eaton on the outside. He reports to the CFO but with access to and support from the chairman.
Eagon extols the virtues of integrating messages coming from the PR, corporate communications and IR sections. ‘If one of our media relations people writes a release, it never leaves the bowels of the company unless Sandy or myself look at it. Similarly, with Dix & Eaton, I wanted one-stop shopping. That way, when the yearly plans are pulled together from marketing, communications, IR, PR and media relations, the same theme runs straight through all the plans.’
Of course, it has not always been smooth sailing. In April, Eagon’s team discovered a momentum investor whose nature they had not suspected, and whose crystal ball had told him it was time to sell: he suddenly dumped 1.5 mn shares in three days. ‘That was quite traumatic,’ Eagon remarks. The stock dropped from $42 to $28, with the IR team handling hundreds of calls in one day – all while trying to find out what was happening. It took several days before they realized it was just one institution which started the avalanche. The stock is now back to where it was, but Diebold is trying hard to avoid similar minded momentum players. Nonetheless, using the crisis communications plan which was set up earlier, the company was able to call on resources and contacts in the media as well in the financial community to counteract the catastrophic stock price fall.
Specialist Team
Eagon adds that an essential part of the team is the NYSE specialist, Merrill Lynch. ‘Merrill Lynch is very good at calling us when it first sees something happening, even before we can ever detect it. It does a tremendous job and was unbelievable around-the-clock during the April crisis.’
Diebold now has a Web site up and running, and IR content covering almost two years has been posted on it. ‘I think we’re finding out, as are other IR professionals, that the Internet still hasn’t come into its own for our purposes. But it will be there some day – I’m sure it will,’ Eagon comments.
Other technology is catching up. When Diebold began conducting teleconferences, it was pleased to get just a score of callers on the line. But now that number is closer to a hundred: ‘We welcome questions, and try to make the presentation from our CFO and chairman as short as possible so that we can allow the bulk of time for more questions. For many people, it’s the only way they get a chance to talk to the chairman.’
But as well as outreach events like teleconferences, Eagon tries to get investors, analysts and NAIC clubs to come to Canton headquarters and Diebold’s worldwide executive conference center, ‘where they can really kick the tires. Every product, every service that we provide is exhibited in some form there, so they come in and do that, and then I can expose them to whoever’s important to their specific interests.’
So as they went to collect their PRSA Silver Anvil, Eagon, Upperman and Dunbar could be permitted some degree of self-satisfaction for hitting their targets. The ratio of institutional investors to individuals is now 65/35, and the number of institutional holders has doubled to over 250. Above all, the company is doing very well. Diebold now counts as a large cap company, ringing in at just under $3 bn in market cap with an average daily trading volume of over 300,000 shares. Eagon concludes, ‘If you follow the trail that we built for ourselves, the company has been moving very nicely – and just exactly the way we’d hoped.’
What the Analysts Say
Jim Roeder
MidWest Research
Analysts share many of Don Eagon’s concerns over Diebold’s positioning. ‘I don’t see them as a technology company; they are unique,’ Roeder confesses. ‘There’s definitely a technology component in what they do and it’s growing. But they are mostly business machines – like Pitney Bowes.’
He concludes, ‘Eagon has done a good job. There’s an awful lot to understand about the company and it’s not an easy one to get a handle on. However the data book they put together has a lot of information, and Eagon backs it up really well.’
Roeder refers to the stock now being back where it was before the momentum player began dumping in April, attesting to the strength of the company. ‘They coped really well, dealing with hundreds of phone calls as the stock began tumbling.’
David Cohen
Value Line
Cohen slots Diebold under office products, and concurs that it has the best form of IR: ‘The main thing it has going for it is good results. A lot of the rest of the IR is fluff. It has good, solid earnings on a fairly predictable basis, and people consider that good IR.’ However Cohen admits that ‘Diebold’s analysts’ meetings where the chairman and CFO speak are pretty good. The slides and presentation are clear – and they do answer questions.’
In addition, Diebold’s conference calls are pretty informative, according to Cohen: ‘They cover most areas, the earnings generally come in near the estimate, and they do fairly well without any surprises.’
Anon
‘Diebold is very healthy and certainly performs very well,’ says this sell-side analyst. ‘Overall it does a very good job with the different businesses, given the number of them that it is in.’ However, he adds that ‘it falls through the cracks if you try to hold it up against the rest of the industry sector. If it really wanted to go forward as a technology company, it could drop some lines of its business.’
That, he admits, would be difficult. ‘It does have some very loyal customers, which is based on it being able to go into a bank and do something very special. It’s been its strength and its albatross. With a really nimble technology company you have to cut some things and move forward.’
Jay Stevens
Buckingham Research
Stevens, who first began covering Diebold as a technology stock, took time off a busy schedule to comment laconically, ‘I think Diebold’s investor relations program is fine. In fact it’s excellent. It keeps everyone informed and provides access to the management at regular meetings. And it has good results, too.’
