The volume of US assets invested in European equities has been steadily increasing for years. More recently, with the rise in technology issues coming from Europe, US investors are looking even harder at foreign markets to beef up their stock portfolios. For their part, European companies have had no choice but to respond to Yankee investor interest, often by setting up investor relations departments in New York City – right next door to Wall Street. The reason for this trend is simple: person-to-person contact is still the best way to get shareholders on-side.
Kathy Liebmann, director of European investor relations at Citigate Dewe Rogerson in New York, attributes the growing number of US-based investor relations departments to continued growth in US ownership of foreign equities. ‘The IR function for European companies in the US is increasing,’ she says. ‘That’s because a number of companies have seen a larger retail shareholder base here in addition to continued growth in US institutional ownership.’
Direct lines
The most crucial role of a US-based IRO is to open the lines of communication with investors, in the view of Nils Paellman, vice president of investor relations at Deutsche Telekom. ‘The main reason we have an office here is that the US shareholder base is very important,’ he says. Currently, around 18 percent of Deutsche Telekom’s free float is held by US investors. Paellman set up Deutsche Telekom’s New York-based IR department in 1998, after ‘the CFO, at the time, decided it was difficult to cover various sectors of investor relations for the US and Canadian market from the head office.’
After two years, Paellman feels he is running a very successful IR program. ‘Ninety percent of US investor inquiries are routed to this office in New York,’ he says. ‘We are taking a very active role in IR by setting up roadshows, selecting our own targets and schedules, and not relying on investment banks so much.’
Iris Welten works with Paellman in Deutsche Telekom’s New York office. As a student in Germany, Welten wrote her masters thesis on investor relations, then spent four years at IR consultancies in New York, along the way developing an understanding of the difference between European and American IR.
‘In general,’ Welten concludes, ‘IR in the US is more challenging because it is much more of an overt sales pitch. In Germany, the difference is that investors approach the corporations whereas in the US the corporations have to approach investors.’
Both Paellman and Welten work closely with the home office investor relations team back in Bonn. They also employ ‘a dedicated team at Dewe Rogerson’ to help set up missionary roadshows and meetings.
‘Our objective is to broaden our US shareholder base because it has a positive impact on share price,’ explains Paellman. His colleague Welten adds her view that, in order to build a strong retail program in the US, ‘You really have to be here. We have a very strong targeting effort. In order to reach our goals and fulfill our specific tasks, we must have a presence in the US. We have continuous communication – it’s not just a case of coming over here and then going back to Germany.’
Building marketing
But as anyone in the business knows, no two IRO roles are the same. ‘My job here has been much more of a marketing position,’ says Frank Murdolo, vice president of IR for North America at Glaxo Wellcome. ‘We are a British-based company with most of our shareholders in the UK, so my focus has been to go out and build up the US shareholder base,’ he says.
Glaxo Wellcome set up its foreign IR arm when it first listed ADRs on the New York Stock Exchange in 1987. Today around 12 percent of the company’s shares are held in the US.
Murdolo communicates with the head office on a daily basis via e-mail, internet and videoconferencing. ‘As for the program itself, it is literally seamless; we share the presentations and the messages are identical on both sides of the pond,’ he says.
However, since Glaxo Wellcome announced its merger with SmithKline Beecham, the story has been getting more complex. The new group will be one of the world’s largest pharmaceutical players with its entire peer group located in the US. ‘From the UK perspective,’ says Murdolo, ‘the message will still be aimed at maintaining the major investors. But in the US it will be less about maintenance, more about attracting new investors.’
One of the frustrations facing an IR professional working for a UK-based company, explains Murdolo, is the problem of limited coverage from the investment community. He says this is a challenge for any non-US company. ‘In the pharmaceuticals sector, at least, big brokerage firms tend to split their coverage between US and UK-based teams. So something I have done since coming on board here at Glaxo is to focus on brokers that are US-based,’ he says.
Overall, Murdolo says the advantage of having an IR department in New York is ‘to be here directly for the US shareholders.’ Beyond the convenience of sharing the same time zone, ‘It’s knowing the company is fully committed to the US market, which is an important attribute of the entire IR program.’
Cultural differences
Chris Hollis has been heading the investor relations function at Elf Aquitaine’s New York office since 1995. ‘When I arrived, there wasn’t really any structure,’ recalls Hollis. ‘So we created our own.’ By focusing on the buy side and targeting institutional investors, reports Hollis, within four years Elf’s US shareholder base increased by 50 percent.
One of the main tools Hollis began using to tell Elf’s story to the US investment community was the internet. This approach differs from that of the home base in Paris according to Hollis, who says the US market is simply more tuned-in. ‘The level of knowledge of the market is much greater than in continental Europe,’ he maintains. To illustrate this cultural difference, Hollis recounts how he would often carry to roadshows ‘a booklet prepared for French employees. One of the pages has an explanation of basic terms like ticker symbol – which is totally superfluous in this kind of equity culture.’
Hollis identifies two main advantages of having a US-based IR department. First of all, by being on-site and becoming familiar with the US community, an IRO is able to develop ‘a real understanding of how US investors work’. And secondly, Hollis says, ‘There is the important role of feeding back information.’ By finding out what investors are saying about the company and its competitors, the US-based IRO informs senior management as well as helping the IR department back home.
A sense of community
As the only US-based IR representative for Aventis, Norma Hunt Allen has quite a challenge. ‘In order to maximize resources, we have put the emphasis on targeting institutional investors in the US,’ says Allen, who feels her presence provides a ‘level of comfort’ for analysts and investors. ‘It sends a signal that management is making an effort to communicate with the world’s largest capital market.’
Aventis was recently created by the merger of France’s Rhone-Poulenc and Germany’s Hoechst. Allen came from the Hoechst side where she has been responsible for investor relations since the company first listed ADRs on the NYSE in October 1997. As head of IR in the US, Hunt is focused on ‘building confidence among US investors in order to assist in maximizing share value.’ In terms of support, Allen communicates daily via phone and e-mail with the Aventis head office in Strasbourg, France.
Allen also communicates regularly with other IROs working for European companies. ‘JP Morgan has been hosting a quarterly roundtable for US-based European IR people, which has been very rewarding. I also attend Niri meetings regularly,’ she says. In order to build her network of European colleagues, Allen recently conducted a phone survey. ‘I interviewed US-based IROs working for European firms and I asked them a series of general questions,’ she explains, adding that this information was key in helping strategize for this year (see Enhanced presence, page 154).
Deutsche Telekom’s Welten also stays in close contact with colleagues. ‘We have a very good relationship with other foreign IROs, meaning we do not only meet at Niri events. We meet for lunch, write e-mails and exchange ideas – we help each other out,’ she says.
The community at large
It’s clear that banks, consultants, and analysts are all pleased to have US-based contacts. ‘Having someone here facilitates things because typically they are in the same time zone and there is more contact, either by telephone or through face-to-face meetings,’ explains Citigate Dewe Rogerson’s Liebmann. She also notes that having corporate IROs on the ground in New York facilitates her job as a consultant representing European companies to a US audience. ‘With several of the companies we have represented over the years, it has been beneficial for us for all the same reasons it works for the investor,’ she says.
Kurt Schneiber, Citibank’s managing director of depositary receipts services, echoes these sentiments. ‘Having an IR professional in the US makes communications more fluid,’ he believes, citing Deutsche Telekom, Nokia and Ericsson as good examples. ‘These companies are already ahead of the game in that they are thinking more seriously about the nuances of approaching the North American investor as compared to their more traditional European-based investor,’ he comments.
‘The primary motivation for setting up an IR department in the US,’ he continues, ‘is that companies would like to understand their investors more directly.’ Schneiber is deeply involved in helping Citibank’s European ADR clients familiarize themselves with the US market. Like Liebmann, he attributes the renewed interest in European equities in part to growth in the US retail market. ‘The IR person is seeking not only the top 15 institutions but the mid-tier and retail investors in the US who are seeking to diversify their portfolios.’
From an analyst’s perspective, a US contact is a plus so long as the person is knowledgeable. ‘If the company has people who have experience and actually know what is going on, then it is helpful,’ says Mark Cardwell, a sell-side analyst with Sanford C Bernstein in New York. Cardwell is one of the few New York-based analysts covering the European technology sector. He says the quality of the IR team based in the US also determines how much he communicates with a company’s head office. ‘As someone working on the sell side, I like to go see the companies in Europe regularly. But for routine Q&A, a good New York investor relations team does the job.’
