Joe Fitzgerald has distilled a whole new spirit into Seagram’s investor relations program. His aim has been to make it a ‘team sport’ at a company which in the past was barely in the IR ball game. And, his newly tapped team now has to play in at least three games at the same time. With health-consciousness putting the squeeze on Seagram’s core liquor business, it started branching out. Then, two years ago, the company made a heady cocktail of itself, mixing the consistent bite of its branded spirits and Tropicana juices with the fizz of MCA/Universal’s media business, not to mention a stake in Time Warner.
So the company was in a sort of start-up mode when Fitzgerald arrived at Seagram’s Park Avenue office in January 1996. For his part, Fitzgerald was new to the liquor side of the business but familiar with the entertainment portion, since his previous job was vice president of investor relations at Capital Cities/ABC.
‘Obviously Seagram was always a visible company,’ Fitzgerald explains. ‘But taking over MCA brought a great deal of interest from entertainment analysts and money managers inclined to invest in the entertainment business.’ Much of his first year on the job was spent trying to make that community’s interest in Seagram an informed one, he recalls.
The converse was that he had to tell media watchers about the spirits business, while decanting entertainment lore for the beverage analysts already following the company. The process was launched with a half-day analysts meeting in October 1996 in New York. Since then, Fitzgerald has maintained the momentum with more meetings and appearances at industry conferences.
Orientation Express
It wasn’t just outsiders needing reorientation, he recalls. ‘We had to draw into the process company people who weren’t as active as they might have been, and educate them about what variables buy-side institutions were interested in; about who these people were, and how they thought and made investment decisions.’
This IR push is completing the process begun by Edgar Bronfman Jr when he took the helm in 1994, determined to steer Seagram closer to Wall Street. It was a natural step to appoint the company’s first full-time IR officer. When Seagram sold off a hunk of chemical giant DuPont and acquired MCA, renaming it Universal, the increase in investor interest was disproportionately greater than any increased capitalization. ‘The headlines and hysteria that surround the entertainment industry and the increased scrutiny it gets are just very different,’ Fitzgerald says.
Strangely enough for a company with such a major international presence, he reports, ‘Seagram was very much undiscovered at the time of the Universal acquisition. Only four earnings models existed for investment opinions on us.’ Before the merger, it seems, analysts just drank Seagram products without writing about the company. Fitzgerald’s first task was to increase that coverage, and he can claim considerable success, with some 23 reasonably informed investment opinions about the $15 billion giant now published.
That is a heady achievement considering the conventional wisdom pendulum is now swinging back towards segmentation and away from conglomeration. But in this case, the steadily earning drinks business is complemented with the growth expectations of the media side.
Fitzgerald is assisted in his work by Maureen Hannan, director of IR, and an executive assistant. He characterizes the department as ‘small, efficient and very productive.’ And he stresses that Seagram’s IR is ‘a team sport. The CEO and CFO are involved in this process and we set expectations of where we’re going and what’s working and what’s not.’
So Fitzgerald has open communication channels to whoever the urgency of the input or output requires – the vice-chairman, chief financial officer, CEO, president, or division heads. ‘It’s important we can speak directly to the executive’s office about what’s happening and what they’re saying about us out there. If something isn’t working as well as we’d like, it’s important that we let senior management know.’
One change that promises to make life easier in the long run was shifting the fiscal year-end from January 31 to June 30. At the time, however, it was a baptism of fire, since it led to a five month transition period that was a sort of intra-calendar year just as new assets had to be digested and new management arrived. The big advantage was that both entertainment and spirit revenues are heavily cyclical, oriented to the end of the year holidays and dark nights.
‘It was very difficult to prepare end-of-year figures and plan for the next year during arguably the busiest time for our operating units,’ Fitzgerald explains.
The rescheduled annual investor meeting is held in October, and although it has been in New York the last two years, Fitzgerald suggests it could be a moveable feast. This year it was in Montreal. ‘It’s four months into the new fiscal year so we can make an informed initial comment on our outlook, using the previous year as a base.’
The annual investor meeting is the ‘principal appearance’ of the top management team, but Seagram has supplemented the event with other appearances at about half a dozen beverage or entertainment conferences in the last year. Fitzgerald, however, finds that ‘frankly there are far too many of these, so we want to be very selective, while arranging private meetings with our key corporate management. Senior people at Universal, Tropicana, and the spirits group have all been very involved.’
Fitzgerald adds that he has been impressed by how seriously senior management have taken the job of educating their own staff about investor relations. ‘It’s very important that everyone is aware of Wall Street’s expectations. For instance, they need to know what analysts are saying, so we circulate their reports quite widely.’
However he cautions analysts that ‘our people have businesses to run and we strongly discourage contacting them directly.’
US Bound
Listed in Montreal, (where it has its headquarters), Toronto and Vancouver, as well as New York and London, Seagram has seen its corporate center of gravity shift further toward the US since the purchase of Universal, and its shareholder base is now more than half in the US. Despite the company’s global brand presence, Fitzgerald reckons the proportion of stock held outside North America is less than 10 percent. But as all of the company’s businesses become even more international, he has made it a priority to attract increased international coverage. Not surprisingly, Fitzgerald thinks Seagram’s global presence will smooth the way for outreach across the oceans. One specific target he has in mind is the Far East, ‘We’ve made selective appearances in those markets but recently the coverage has increased and we plan to approach it on a more formal basis.’
Of course, a large measure of Seagram’s stability is provided by the Bronfman family’s 30 percent holdings, which fulfill the anchoring function of individual shareholders in other companies. Fitzgerald finds that investors are more reassured by the family stake than worried by issues of control. ‘Changing the company around from where it was involves some risk and I think other shareholders take comfort from the Bronfman family’s commitment.’
Consequently, Fitzgerald’s emphasis is overwhelmingly on institutional holders – present and future. At the moment the effort is ‘just to get Seagram on the radar screen, and get it covered by major brokerage houses, making them comfortable with the way the revenues break down.’
The next step, a priority for this fiscal year, is to go out and target institutional investors on a more formal basis. It has not been sloth that has delayed the process, but the need for careful preparation. As any purveyor of Seagram’s traditional products line knows, it takes careful work to get the right mixture blended, and this year’s annual investor meeting provided the first opportunity for analysis of the new corporate mixture. ‘When you sit down with portfolio managers and try to impress them favorably, the first thing they want to see is an earnings model, and now there are plenty of those around.’
‘Currently we have a very good dialogue with our existing shareholders,’ Fitzgerald adds, ‘while we have been able to do some missionary work with prospective shareholders as well. There’s been very good coverage in the US and Canada and – let’s say – a following in London. Now that we have some quarterly and yearly performances to show, institutions will be much more familiar with us and we’ll be able to target them more specifically.’
Webbing Up
As one would expect in the new world of multimedia, Seagram’s Web site offers extensive financial information about the company. The IR department is happily allowing corporate communications to take the lead on this with the help of corporate financial staff. ‘Obviously the trick is to set up a site whose basic care, maintenance and feeding isn’t an enormous task but which still provides useful and up-to-date information.’ It is, in a way, similar to the annual report: too much work for the small IR department to undertake but essential for them to have an input.
Fitzgerald’s IR strategy, he summarizes, is about ‘providing all the information investors need in order to have an informed opinion about Seagram on a timely basis. We want to initiate and maintain a dialogue with our shareholders and prospective shareholders.’
Of course, just how much information can be provided is always a quandary. Fitzgerald says that ‘the trick is to find a comfort level with the amount of information given to the investment community. There’s an insatiable appetite for information about a company, often proprietary.’
He expresses satisfaction at Seagram’s approach, which defines the comfort level as ‘providing investors with information that they wouldn’t necessarily get from our peers.’ He concludes: ‘I hope we can do it on a regular and consistent basis – that’s our plan and we’ve got a lot of people involved.’
For a company whose IR was maturing in the cellars along with its premium drinks three years ago, the exposure to the limelight is clearly twice as intoxicating – but there seems little danger that Joe Fitzgerald will let it go his head.
What the Analysts Say
Faced with the problems of covering Seagram’s divergent businesses, the response of many analysts is to stick to their knitting. Some research departments have their drinks and entertainment analysts working separately and then coming together to consolidate results. This is not always easy, since the merger was a bit like hitching a frisky Arab racer to a steadily plodding cart-horse – a slow-growing, mature and solid drinks business is now hitched to a highly volatile entertainment operation.
What the Analysts Say
Roy Burry
Oppenheimer
Oppenheimer’s Burry covers the drinks side of Seagram, conferring with Alan Gould, who covers entertainment. Burry gives top marks to Joe Fitzgerald. ‘He’s managed to do two things. First he has formalized the IR program, getting feedback and establishing regular analyst meetings.’
The second part of Fitzgerald’s success is that ‘he has the full attention of top management,’ Burry says. He contrasts the current scenario with previous years of neglect, but adds indulgently, ‘Of course, Bronfman Junior’s reputation is on the line here. The merger was his idea: he did this and so he has a very deep vested interest in making sure that investors are happy!’
That is more difficult to achieve now than it was before: ‘The merger caused a major valuation problem. Entertainment and beverage analysts use different measures. It will take a highly professional management to satisfy both.’ But a good IRO makes it easier, and Burry acknowledges Fitzgerald has ‘much more expertise in the entertainment field than his predecessors.’
Richard Billotti
Morgan Stanley
The Morgan Stanley research team has a similar creative approach to the divergent Seagram empire. Billotti handles the entertainment side while Andrew Conway looks after the booze.
‘One outstanding feature about Joe,’ remarks Billotti, ‘is that he not only understands Seagram’s entertainment businesses and can explain them, but he understands the whole industry because of his experience. That makes him a pleasure to talk to because you can learn a lot.’
Ed Hatch
UBS
Hatch, who recently accompanied a group of clients on a trip to Universal Studios organized by Fitzgerald, has no doubts about the IRO’s abilities. ‘Fitzgerald has done an excellent job helping an entertainment analyst like me evaluate Seagram’s brands like Tropicana and Absolut.’
He adds that the company’s two businesses are not as dissimilar as they appear at first because they both involve global marketing of great brands.
Marty Romm
Credit Suisse First Boston
CSFB also fissions the analysis, and drinks analyst Marty Romm is as bubbly about Fitzgerald as his analyst colleagues covering entertainment.
‘I like Joe’s style. He’s very well-balanced and has an ability to be optimistic about the business plan but at the same time to be practical. He has a good grasp of the big picture,’ comments Romm.
