Companies with unusual listing structures pose particular problems for investor relations officers. True dual, or even multiple, full listings are relatively rare, with Anglo-Dutch companies such as Shell, Unilever and Reed Elsevier the most notable European examples. But how do you cope if your stock market quotation is in both London and Melbourne, or London and Johannesburg? Or if your operations are based in Hong Kong, and you are listed in London?
As mergers, takeovers and acquisitions continue to re-shape the global corporate environment into the next millennium, the multi-national corporations with unusual share listing arrangements is bound to grow. That means investor relations professionals may well find themselves faced with some curious stock market hybrids.
Mining giant Rio Tinto is one company whose investor relations department has faced this sort of challenge. In 1995 Rio Tinto decided to integrate its Australian and UK-based operations by creating two listed companies which would each have the same board of directors and offer shareholders identical dividends. However, they were to remain as separate legal entities quoted on stock exchanges in Melbourne and London.
There were certain taxation advantages to shareholders in avoiding a full merger of the two companies, and it allows Australian shareholders to receive their dividends with taxation fully paid. Another advantage for both Rio Tinto and institutional investors is that the company can offer investments for both European and Asian funds. Managers can put Rio Tinto plc into European funds and Rio Tinto Ltd into Asia Pacific portfolios.
From an investor relations point of view, Rio Tinto has to maintain separate investor relations departments in London and Melbourne. And it also has to hold two annual general meetings. ‘The nine hours time difference expands to eleven hours when British Summer Time ends, and that can be a source of annoyance,’ says Melbourne-based investor relations manager Dave Skinner, speaking at 9.30 pm local time. ‘We release our half-year and annual results simultaneously, and we do end up with a lot of late night calls.’
Peter Jarvis, head of investor relations in London, explains: ‘The move to dual listing and separate companies eliminated a potential conflict of interest between the two sides of the company. Otherwise, they might have both been bidding for the same assets, for example. It’s a practical response to globalization. But with identical boards and strategies, Rio Tinto is to all intents and purposes a single entity. It’s also a matter of history and reflects the assets held in Australia.’
Change will do you good
A combination of history and pragmatic commercial considerations also lay behind the decision by South African Breweries to shift its primary listing to London in March of this year. The fourth largest brewing group in the world, SAB has actually held a London Stock Exchange quotation for 101 years, though its primary listing switched to Johannesburg in 1970. That changed with the election of Nelson Mandela and the African National Congress in the early 1990s, which allowed the company to expand its beer operations around the world. It has not looked back.
‘In the early 1990s SAB became an international brewer, and expanded outside South Africa into Poland, Hungary, Slovakia, Russia and China,’ says senior IR manager Keith Doig, an SAB corporate financier seconded to London to handle investor relations pending appointment of a full-time IR manager. ‘We needed a listing in London to get access to a greater depth of funding. The global brewing business will consolidate and SAB intends to be a major player,’ he says.
‘As we already had a secondary listing [in London], it was the obvious choice, with a secondary listing in Johannesburg and an ADR in New York. We released our results in London this year with a video conference link to Johannesburg and Cape Town. It was a challenge setting it up, but necessary in view of our widespread audience’.
Since the South African general election, SAB has seen its share price improve on the confirmation of political stability and clearly intends to use its new IR platform in London to build its shareholder base as a part of its globalization strategy. Other South African groups like Old Mutual and Anglo-American also have dual listings for similar reasons, and in the future more companies from emerging markets may chose to follow this route to raising finance.
London calling
However, some companies operating in emerging markets have long found it beneficial to have a listing on a stock market in the developed world. Standard Chartered Bank, for example, has 60 percent of its business in north east and south east Asia and 20 percent in Africa, while the group is listed on the London Stock Exchange. Here the reasons are historical. Both the banks that merged to create Standard Chartered in 1969 had long traditions of servicing what was previously the British Empire. The modern company has simply seen no reason to change this unusual listing arrangement, and indeed sees it as an advantage.
‘Investors seem to appreciate the benefits of a UK regulated bank with a big Asian exposure,’ says Tim Halford, director of corporate affairs in London, where the investor relations department is based. ‘We are very conservative, well regulated and operate to OECD [Organization for European Cooperation and Development] banking standards. From time to time we have discussed listing in Hong Kong, Singapore and Malaysia, but have remained with London.’
The chairman, chief executive and finance director of Standard Chartered are also based in London, which clearly facilitates one-to-one meetings with those institutions based in the City. ‘Every year we alternate between taking shareholders and analysts to the Far East,’ says Halford. ‘We pick ten to twelve shareholders or potential shareholders, and the analysts are chosen by the volume of shares traded. It is a tougher education program, particularly as we have operations in 50 countries. But that means we are never dull and boring and always have something to discuss with shareholders. Our meetings are always popular.’
One vision
Travel is still the biggest bugbear for most global companies with non-standard listing structures. ‘Our approach is to centralize the channel of communication on to one person who does an awful lot of travelling,’ said a spokesman for Unilever, which is quoted in London, New York and Amsterdam. ‘The advantage is that although there are three markets, we only want there to be one Unilever view. The danger with having IR staff in each location is that they start to reflect the local stock market view rather than Unilever’s.’
That does mean that the company’s head of investor relations is away almost every week making a presentation somewhere. ‘But investors all get the same message from Unilever, and that is how we think it should be.’
So even for Anglo-Dutch companies unusual share structures present an organizational challenge for their IR departments. Another example is the oil giant Royal Dutch/Shell – 60 percent owned by Amsterdam-quoted Royal Dutch and 40 percent by London-listed Shell. (It is also listed in a variety of forms on many other stock markets). Ownership is therefore split between two quoted companies although, for executive management and investor relations, the group functions as a single entity.
‘Being listed on a lot of exchanges means that we have to understand a range of fiscal regimes. Otherwise we have one strategy and communicate as a group,’ says investor relations manager in the UK Michael Howard. ‘Having two parent companies does make things marginally more complex, but the main problem is the number of markets we have to deal with. For results we announce at 10 am in the UK, which is 11 am in the Netherlands, and 5 am in the US – so that is before the exchange opens.’
According to Howard, ‘It is really just a matter of keeping up with our shareholders wherever they happen to be, and providing presentations and information to meet the needs of the local investor community. Our investor relations side is split between the Netherlands, the US and London and we are in regular contact by phone and e-mail.’
Rate of change
In their various ways, it seems that IROs have adapted to the challenges of unusual listing structures in a very similar fashion to the way they have adapted to globalization in general. The investor relations function can be split between two or more locations and effectively carried out through modern telecommunications and the internet.
Alternatively, the investor relations function can be centralized. Usually there are very good historical and practical reasons for a non-standard listing arrangement, which more than compensate for any organizational hassles it might initially present for investor relations departments.
Yet separating key listings from the domestic market tends to lead to even more of an international shareholding structure than might otherwise be expected. And that means more travelling for senior management and IR staff. Senior investors will always require one-to-one meetings with senior executives: the sine qua non of a successful investor relations strategy. Clearly one solution is to have a headquarters in a major financial center, such as London (where many of the institutional shareholders will be located in any case), and then IR can become a matter of looking after visitors rather than travelling the world. But major shareholders still expect to be included on the senior management travel schedule.
On the whole, having an unusual listing structure does not seem to be an IR handicap. Indeed, there might even be an upside. The very novelty of a non-standard share structure can be exploited to enhance the image of the company; and, in an age when many global groups are struggling to differentiate themselves, that may be a significant advantage in itself. Perhaps it pays to be different.
