Dynegy is into wholesale energy, and the dynamism and energy of its IR department won glory wholesale at the annual Investor Relations Magazine US Awards this year. The Texas-based company won the Grand Prix for best overall IR in the $10-30 bn market cap range and many of the elements that hoisted it to this eminence were honored in other awards. Meg Nollen, VP of IR, only just missed winning best IRO in the same range, with one survey respondent commenting, ‘Without a doubt, she alone is probably worth 20 percent of the share price.’ CEO Chuck Watson was honorably mentioned for best IR by a CEO, as were, in fact, Dynegy’s whole senior management for their communications, investor meetings and disclosure policy.
The performance was all the more remarkable since the company only really hit the markets last year. But you can see why stockholders pile on the hyperbole – the stock shot from $10 to $60 and even with some pressure from the California power crisis, it’s still hovering in the mid-40s at the time of writing.
Indeed, there’s nothing like a crisis to separate the best from the rest. ‘Dynegy’s communications and openness are welcome at a time like this,’ remarks Anatol Feygin, an analyst with JP Morgan.
‘Not since the early 1970s has the energy market been so much in the news. There are so many competing flows – California, Texas and the federal government. So communicating openly and often is unquestionably very important.’
‘They have really kept on top of the power crisis relative to their peers,’ adds Mark Easterbrook of Dain Rauscher Wessels. ‘Obviously it’s a grave concern for the entire sector, but Dynegy keeps me up-to-date, both on what’s happening and their viewpoint on it.’
Maestro & conductor
While there is praise for Dynegy’s overall efforts, much of it settles on Nollen herself, who modestly describes her role as ‘chief cook and bottle washer.’ Her career has bounced from banking and cash management to finance and issuing bonds. ‘I’ve worked for universities, and even for the Houston Symphony. I’ve been looking for my spot, and IR is the first spot where I’ve combined finance and sales in this way,’ she says of her newfound position as maestro and conductor of Dynegy’s IR band. She tuned her IR skills at Enron with Mark Koenig, ‘who had a very dynamic IR program,’ before moving to Dynegy.
For its first ten years, Dynegy was a private company. It then spent five years as a nominally public company, with 76 percent of its shares owned by three other companies and 10 percent by management. Then in February 2000 it merged with – or took over, depending on who’s talking – Illinois Power. The utility brought shareholders, lots of them, and the float went from 15 percent to 65 percent. The result was a liquidity bump compounding the effect of the $165 mn merger savings that were unlocked. ‘It cut a lot of fat – we run lean and smart,’ boasts Nollen.
The management team owns 8 percent of the stock, and, not surprisingly as they watched their worth soar, ‘They have really come to appreciate Wall Street.’ It helps that Nollen is on the management committee and communicates the market’s feedback directly. Her position also helps keep investor relations at the core of the company’s decision-making.
Senior IR director Art Shannon assents, adding that senior management’s enthusiasm even survives what the department calls the ‘Meg Schedule’. An example of the Meg Schedule has the management land in a town at midnight, start their one-on-ones at 7am, work through the evening, and then fly back. ‘They love it, they want to meet with everyone, and sell-side conferences are surrounded with breakfasts, lunches and one-on-ones,’ Shannon explains.
Target centers
Of course the big money centers are the IR team’s and senior management’s targets – for the same reason that robbers raid banks: that’s where the money is. But the earnings reports are usually followed by a pilgrimage around the second and third-tier cities, which Nollen sometimes does solo. ‘It’s really gratifying; they’re so glad to see us in those places,’ Shannon reports.
Shannon came to Dynegy a year ago after a long career in IR consulting with Georgeson. ‘After Thomson bought them,’ Shannon says, he moved to Carson until ‘Thomson bought them too.’ (Seemingly, there is no escape. Even now, Thomson does Dynegy’s stockwatch.) ‘I worked in energy all the way through,’ Shannon explains. At Dynegy he joined Meg Nollen’s growing team: director of IR Katie Pipkin; Christina Cavaretta, the project coordinator who organizes all the meetings and travel; and recently April Crone, who holds hands for ex-utility retail investors who worry their dividends have gone down even as their stock soars.
With the retail investors well taken care of, the target is actually to increase the level of institutional ownership. Currently, institutions represent 76 percent of the float, up 4 percent since the merger. Chevron holds a 28 percent stake, which has all the ballasting functions of retail investors. Shannon explains: ‘We don’t currently have a retail name, and good shareholders though the individuals are, they don’t drive the share price. So we’d rather focus on the institutions.’
A new Europe
Dynegy is also pushing into Europe. Beyond London and Paris, where executives have attended sell-side conferences, they are accessing new sources of equity like Milan. Shannon says there has been ‘a tremendous amount of interest over there this year – we were surprised at how much. They are very interested in our stock. In the past it was difficult because Europeans had rules on how much they could invest in US companies, but that seems to be getting rolled back now.’ The sell-side advice to Europeans is to bring their money to New York, so there is no longer any pressing need for expensive overseas listings.
While everyone on the team is versatile, Shannon and Katie Pipkin have specialized in different areas of the company. Preparing for a recent analyst conference, Pipkin worked with ‘the financial folks and the liquids people and I worked with the marketing and trading people,’ Shannon says. Indeed, the versatility is now institutionalized, since the department is augmented by MBA-graduate recruits who begin their Dynegy careers in IR. ‘Since it touches so many facets, it’s great training,’ Shannon claims. He also modestly alleges that he needs to pay more attention to another of his responsibilities – the web site (dynegy.com). In truth, the current site puts many other companies’ sites to shame.
Despite their separate tasks, the score the band plays to is manifestly written by Nollen, who declares, ‘I don’t consider it just IR – it’s so much more than that. I consider myself a liaison between Wall Street and our company. There is so much more than just what’s the stock doing? I don’t just consider myself a parrot; I don’t see myself as having a one-way role.’
Thinking outside the box
Serendipitously, Nollen found that the Street was under-informed about the industry, which she alleges had traditionally been a black box. ‘It continues to be one, but we’ve really been very comfortable with opening it up,’ she says wryly. ‘If I can help them understand the company well enough, then they should understand how changes in the industry would impact us without me telling them. I went out on a mission to teach people about this industry, and thus the company. So I became an industry source.’
But which industry? Dynegy sells natural gas, power, coal and broadband capacity. That doesn’t make for a close fit with peers which investors could use for comparison. The most common category is ‘integrated energy merchant,’ predominately in wholesale natural gas and power. Nollen notes that the company has a complicated structure, and it is followed by gas analysts as well as mid-stream, power/utility and independent power producer analysts. Last year the company snapped up some failing broadband networks for ‘cents on the dollar,’ thus joining competitors like Williams and Enron without having to worry about rights of way.
To avoid being boxed in by the analysts’ multi-faceted preconceptions, ‘What I try to do is to educate, and make it easy to cover the company right down to the infinitesimal details,’ Nollen explains.
She denies the allegations of a collective love affair with the sell side, fueled by their unstinting praise. ‘We’re great co-workers, is how I see my sell side. If they have questions on a burning issue, I know that they can touch ten buy-siders before I could. I don’t spin, and I don’t hype. I can’t say that I never do – but when I do, they tell me. If it’s public, if it’s been said, and I can talk about it, then we talk about it. And we can always talk about the industry.’
With a stock that goes up 600 percent in two years, one could easily and cynically suspect hype. Nollen retorts, ‘Although it was very difficult at first to get attention, we avoided hyping or dot-com spin. I didn’t think it was smart to go out and set traps for ourselves. The great thing about the company is that I don’t have to hype it or oversell it. We don’t have to sell it on its future but on the organic growth we’re creating within the company today.’
Clearly Nollen and her team have, in a short time, created an amazing empathy with the investment community, which she admits was no accident. ‘We treat people like people and we listen. It doesn’t always change how we act, but the magical key to communication is understanding, and that’s in the mind of the person listening, not the one talking. That’s what I’ve taught my staff.’
What they say about Dynegy
Donato Eassey, Merrill Lynch
‘Dynegy’s investor relations team is very proactive. Above all, if something’s going on they put out a press release and send out e-mails. And they are generally very open, honest and candid. I consider them to have impeccable credentials in forthrightness. They are certainly better than just about everybody else in dealing with the issues in California. They have a very good chain of command to management and, paramount to success, a direct tie to management.’
Anatol Feygin, JP Morgan
‘The most distinguishing aspect of Dynegy’s IR operation is that they are very proactive in sending out information and good at keeping us informed with what’s going on. For example, if COO Steve Bergstrom has a meeting with the FERC [Federal Energy Regulatory Commission] they might send around a message with what came out. They are very good at hosting conference calls and they send out their take on the issues which are on everyone’s mind, whether by voicemail or e-mail.’
Mark Easterbrook, Dain Rauscher Wessels
‘They’ve definitely improved their visibility and their information flow. We get a lot of drilling down on the worksheet side in terms of volumes and margins – vastly improved information since three or four years ago. Some things put them way above – like holding semi-annual conferences instead of annual ones. And the new format was very interesting: everyone e-mailed their questions beforehand, so that instead of three or four people making PowerPoint presentations, they got five or six managers on a panel to take those questions. They didn’t just focus on one or two businesses, they dealt with all the businesses. I thought that was innovative.’
James Yannello, UBS Warburg
‘Dynegy has a big IR staff who are knowledgeable about both the company and the industry. They are well supported by senior management, so if I need to get a senior manager on the phone, they know the importance, and I’ll get through in very short time. They are energetic, into their job; I regularly get phone calls at 7:15 in the morning as they head into work. It’s a very vibrant IR department. They are bright and motivated and they like what they are doing. They tell both good and bad news, so it’s not just the positive spin. Whatever Nollen is making, she deserves a raise.’
