It’s not quite the Alamo, but the heirs of Columbus and Drake spent this spring battling it out on the southern tip of the Americas, as the Spanish electricity giant Endesa and Duke Energy of the USA wrestled for the soul and stock of the Chilean company Endesa de Chile (no corporate relation at that time). Endesa of Spain was eventually victorious, thanks in no small part to the hard work of its IR team in Madrid and New York.
Luis Calvo, deputy manager for equity markets, holds main responsibility for Endesa’s IR in Europe. He works closely alongside Miguel Temboury, IRO for North America based in New York. Calvo reports directly to the director of equity and accounts, Javier Avila, and indirectly through him to the CFO, Jose Luis Palomo. Temboury, Calvo’s predecessor in Madrid, reports directly to the CFO.
Calvo took up Temboury’s post when the latter moved to New York to handle IR in the Americas. His English polished by seven years with Chase, Calvo reckoned that after three years in financing with Endesa, it was an exciting career move. ‘The job looked intellectually very rewarding, with its combination of finance and marketing,’ he recalls.
Investor relations is still a relatively small field in Spain: the Spanish Investor Relations Association (Aeri), which has been in place for nearly a decade, still only has 24 members. Endesa itself was an IR pioneer, both in New York, where it has had an IRO for over a decade; and in Madrid, where it is six years since Temboury pioneered the position.
Retail mass
Calvo himself only deals with the institutions, who make up half of the company’s investors, but he is also responsible for the two staff in the shareholder relations office. Their job is to deal with the massive list of 1.5 mn retail shareholders, who acquired stock in the course of the privatizations and who have access to a free telephone number to check on the latest news.
The numerous individual investors reflect the conditions of the privatization program, but Calvo also suggests that the combination of low Spanish interest rates and a rising stock market have tempted the retail side to take advantage of the growing dividends and valuation of the company’s stock. Today Endesa’s market cap is over $21 bn.
But Calvo also has strong pockets of institutional following in the UK, France and Germany; and he deals with some 47 analysts, mostly in Spain and London. Accounting is in pesetas, euros and dollars while reports are prepared in English and Spanish.
Endesa is trying to target longer-term holders, but Calvo notes that this isn’t always easy. All Endesa’s stock, apart from ADRs, is in the form of bearer shares, so there is no shareholder register. As a result, Calvo explains, ‘The best sources of information at many times are the investors themselves. In Spain we can obtain a list from the settlement division of the stock exchange, but they will only supply it for your records once a year, once you have called the annual general meeting. And anyway, in most cases the identification does not go beyond nominees or custodians.’
Endesa does have to file quarterly reports, although Spanish regulations only require relatively skimpy details for the first and third quarters, ‘But we supply the whole lot, and conduct conference calls every quarter,’ he says.
With limited opportunities for dealing directly with bearer shareholders, contact with the sell-side is extremely important. So, usually within an hour of the report being filed at the Bolsa, he has 70 or 80 people dialing in to hear CEO Rafael Miranda Robredo on the company’s conference call. The New York office invites US investors and analysts to join in and around 30 institutions typically avail themselves of the opportunity.
The call is usually followed by one-on-ones, although brokers often act as intermediaries for the visits to head office, sometimes accompanying the investor. The CEO is kept in reserve for the most important roadshows and investor meetings: in Madrid, usually it is the CFO Palomo, or Calvo and Avila; in the US, institutions meet with Temboury.
Co-operative management
‘Management is highly committed and understands the need for a good IR policy, so they are very co-operative in that sense,’ explains Calvo. ‘We normally try to do roadshows twice a year, but the last year’s significant developments, such as the final tranche of the privatization, the merger with affiliated companies in Spain and the Chilean acquisition, have made us organize more of them.’ Calvo adds that London, Edinburgh and the east coast of the US are the usual roadshow destinations, but recent events have called for this list to be lengthened.
One part of the intense IR activity has been a corporate rebranding exercise as the company, which began as a very small state-owned generator with just a single power plant, acquired more generation assets and more utilities. The company has been consolidating its various majority-owned subsidiaries and converting their minority shareholders into stockholders of Endesa itself.
At the same time, the deregulated operating environment creates an investment imperative. ‘Electricity demand has low growth forecasts for Spain compared with other regions of the world, and we generate enough free cash flow to be reinvested internationally in the electric business or here in Spain in diversified businesses, like telecoms, water, gas, co-generation and renewable energies.’
Multimedia choice
Although one of the assets the company is using to diversify is its own internal high capacity fiber optic network for telecoms, Calvo remains to be convinced that the internet is reliable enough for effective IR. ‘When you include large attachments, the messages often arrive late, so whenever I need to get a message across fast, I use the fax. It may be more expensive, but it’s reliable.’ As Temboury says, that has to be set against the fact that US investors and analysts pay more attention to messages appearing on their PC screens than they do to faxes. At any rate, Endesa’s IR team is happy with its bilingual web site, and analysts are increasingly downloading data directly from it.
Calvo himself is hiring two new people to help collate the increasingly copious data stream from the company’s expanding enterprises. Even so, he says, ‘My priority is to keep the information flow with the analysts as clean as possible, so I am in charge of taking calls from them.’
Happily, Endesa does not suffer from the bureaucrats’ bane of some former state-owned industries, where functionaries hoard information like dragons sitting on heaps of gold. ‘I have a very big advantage since my boss is the person in charge of consolidating all of the company information, so I have direct access to all of the company accounts,’ crows Calvo. ‘The people who do the accounting and crunch the numbers are my colleagues, so there is no conflict. I receive constant information from other departments, so I’m pretty well informed about the company.’
The intrusiveness of IR officers may be accepted in the English speaking world, but from conversations with his colleagues in other companies, Calvo suspects that this aspect of Endesa is unusual for Spain.
Battle zone
It undoubtedly proved valuable when it came to the takeover battle for Chilean company Enersis, the largest listed electric group in Latin America. Endesa had bought the maximum 32 percent allowed by the Chilean government under the privatization deal. Raising that limit needed a 75 percent vote of the company’s shareholders, which involved extensive canvassing. The first attempt, coupled with a cash offer, just missed with a 74 percent vote.
The next attempt involved more motivating of ADR holders – mainly in North America, but also in Europe – to vote; as well as extensive roadshows, including one-on-ones with Latin American utilities analysts mostly based in New York. The second attempt was successful and more than 84 percent of shareholders voted in favor of Endesa’s proposal (including 70 percent of the ADR holders).
Endesa was able to complete its tender offers in Chile and the US for $1.4 bn, increasing its interest in Enersis to 64 percent. But then, along came Duke Energy from the States with a bid to buy Enersis’ largest subsidiary, Endesa de Chile. Endesa of Spain’s $2 bn offer eventually won the bidding war with Duke.
New York role
Crucial to the success of the bid was the IR office in New York, headed by Miguel Temboury, who spent five years doing Calvo’s job in Madrid before moving to New York a year ago. Before originally taking up a position with Endesa’s finance department, he worked for the Madrid Stock Exchange for three years and with Coopers & Lybrand as a consultant for four years, preparing him to be one of Spain’s IRO pioneers.
The New York office was opened in 1988 for the initial IPO and its listing on the NYSE, when it became the first foreign utility with an ADR. After ten years, as veteran IR officer Fernando Lario was retiring, the company considered closing the Manhattan office. But headquarters was also well aware of the importance of the US capital markets, not least since US institutions hold 12 percent of the company. After a year, the decision to maintain it has been vindicated as the office helped marshal the US held proxies in favor of Endesa’s Chilean expansion.
After investing a total of $3.5 bn, Endesa now controls Enersis, Endesa Chile and Chilectra, all listed on the NYSE and with a significant presence of institutional investors. Endesa’s New York office was very active with investors and analysts following these companies and it is likely to play an important role in coordinating their IR programs in the US. Although the New York office joined the NAIC, it is happy to concentrate on the institutions. ‘We play a much more proactive role in calling institutions and targeting investors compared to Madrid, where incessant visits leave less room for marketing initiatives,’ Temboury says.
Most of the sell-side analyst coverage is also out of Madrid and London, freeing Temboury to speak directly to the buy-side. Nevertheless, recent acquisitions in Chile have increased substantially the contact with analysts and investors following these companies. His focus is to increase the presence of Endesa among the institutional investors in the mid-west, on the west coast and in Canada. Resisting the tendency to categorize the company as a pure Spanish electric utility, he points out the company’s telecom, gas and water holdings, together with the increasing presence in Latin America.
Keeping on top of the Argentine, Brazilian, Peruvian, Chilean and Colombian economies, electric industries and regulations does, he admits ‘make IR life more complicated.’ Apart from the two official roadshows a year, he is very active in traveling to target institutions away from the east coast which, although small by US standards, ‘are big and important’ for Endesa. ‘It would be difficult to maintain so much IR activity here without a physical presence,’ concludes Temboury.
The presence of an active and able IR team at Endesa has certainly been a critical ingredient in the company’s rapid expansion to become one of the world’s major utilities expanding into Latin America, where a shared language still gives them a comparative advantage. Of course, speaking English also helps – but fluency in IR is no mean part of the success story, pointing the way for other Spanish companies.
