Preparing an IPO for a company with little experience of the capital markets is like going into a jungle with scant knowledge of the terrain, a compass yet to be removed from its wrapping, and a pair of new shoes that pinch at the heels.
But Norway’s state-owned energy giant, Statoil, knew better than to embark without experienced guides to steer its course down the slipway to flotation earlier this year. In the event it was the largest IPO ever in Norway and the second biggest in Europe. This was no dinghy; it was a major ocean-going liner set to make a splash in the capital markets.
The birth of IR
Statoil’s investor relations was officially born in April 2000 with the arrival of chief financial officer Inge Hansen. He had been president of Orkla Securities, a leading Norwegian investment bank, and carried gold-plated credentials for the task at hand.
Hansen employed Mari Thjomoe to establish an investor relations department and to help with the new listing. Formerly head of IR at Norsk Hydro, another partially-state owned Norwegian energy company, Thjomoe actually joined Statoil at the precise moment the decision to float was being made. She chalks up the success of Statoil’s 18.2 percent IPO to careful development of a persuasive ‘equity story’. Statoil entered the open market at Nkr69 per share – clearly an attractive price since the deal was four times oversubscribed and raised $3 bn.
Developing roles
Thjomoe was involved in every aspect of the deal from the publication of the prospectus to investor presentations. The IR department even helped with the structure of the sale and the coordination of the syndicate of banks that marketed the stock.
Along the way, Thjomoe became closely involved with adjusting Statoil’s internal financial reporting processes to comply with all the market requirements. The company already had very rigorous reporting mechanisms, although they were different and fairly ‘low key’ compared with what external investors require. The objective was to float on the Oslo Stock Exchange and to seek a full ADR listing in the US. That meant, therefore, restating all accounts in US Gaap as well as adjusting timing and reporting processes to comply with Norwegian and US stock exchange regulations.
‘The US Gaap listing was quite a big change for the business units and our accounting areas. We are now aligning ourselves much more closely to our peers in the way we report because we want it to be as easy as possible for the company to be analyzed by the market,’ explains Thjomoe.
Joining the department in October 2000 was Svein Skar, an experienced Statoil employee who brought considerable knowledge about the company and its internal processes to the IR department. He joined the IR team just when Statoil’s IPO project was starting and the process of selecting key global investment banking advisors was being finalized. Three global coordinators made the grade: UBS Warburg, Morgan Stanley and Norsk Bank. There were also legal advisors and representatives from Norway’s oil and energy ministry.
‘With a flotation target date of June 18, the final prospectus had to be ready by mid-May,’ explains Thjomoe. ‘June was chosen because we were awaiting a decision by parliament in the spring. Parliament also had to agree on new tax proposals before the flotation could be agreed.’
At the same time, Statoil took over other direct financial interests from the government. These were passive holdings, which effectively increased the company’s production levels by 45 percent. All this had to be clearly detailed in the prospectus. The IPO timing was also affected by impending national elections in the fall of 2001. So there was a clear window of opportunity, but it would only be open for a matter of weeks.
Taking measures
‘May 2001 was when the size of the float had to be established, so we didn’t have a great deal of time, says Thjomoe. The government said it would offer to float 10-25 percent, but this figure was later adjusted to 17.5-20.1 percent.’
IR activities were further constrained by the plan to list on the New York Stock Exchange with a full ADR listing. This meant Statoil’s application and prospectus had to be approved by the Securities and Exchange Commission and the New York Stock Exchange had to recommend listing.
‘We had to be extremely careful not to give out any information that wasn’t in the prospectus,’ notes Thjomoe. ‘We couldn’t even conduct any promotional activity in the US – the syndicate of banks and advisors couldn’t do anything there until the prospectus was published.’
Only in May could the banks start pre-market meetings to promote the stock, check out investor interest and help establish a price range for the shares. As a result there were literally hundreds of meetings during the three weeks leading up to the IPO.
Time and resources were also spent promoting the shares to private investors. The Norwegian public was the main focus of a publicity campaign through newspapers, TV, radio and direct mail to private households.
Along with the company’s 16,000 Norwegian employees, retail investors were offered a special 4.5 percent discount. That helped turn Statoil into the most widely held share in Norway, with 63,000 owners. More than 60 percent of eligible employees participated – no doubt attracted by an investment upper limit of Nkr75,000, three times the amount offered to ordinary retail investors.
Reproduction
During the lead up to the IPO, it was only Thjomoe and Skar looking after IR, but Thjomoe also had to establish a long-term IR strategy that the board would support. One strand of this strategy has been the expansion of her department.
Statoil now has IR representation in New York, a position taken by the former head of the company’s mergers and acquisitions team, Thore Kristiansen. Other new arrivals are investor relations manager Lars Sorsen and office coordinator Hilde Bjorlo joining Thjomoe at head office in Stavanger.
Thjomoe says she placed much emphasis on internal expertise when building her new IR team. Skar has been with the company for twelve years, Kristiansen 14, Sorsen six, and Bjorlo eight.
‘Svein had almost a year to work with us so he knew quite a lot about investor relations when we were floated; and Lars had been working in the capital markets before,’ says Thjomoe. ‘Even though they did not have direct investor relations backgrounds, they had sufficient understanding of the IR disciplines. The most important things that I was looking out for were to get people with good experience, people who were viewed as good candidates within the company and widely respected in the organization.’
Indeed Thjomoe believes it was an important signal for her department to hire internal people. There were competent candidates already working for the company and there had also been quite a big downsizing in parallel with the flotation, which meant it was a good policy to redeploy internal experts where possible.
The tip
For IROs embarking on a similar journey towards flotation, Thjomoe advises them to be fully aware of what a US listing entails. ‘There are a lot of restrictions on the information you are allowed to give out. We even had to stop giving information to certain colleagues because they were ordinary employees of the company and therefore potential investors. Only members of the flotation project were allowed to have classified information. That made the process quite demanding.’
Even with the benefit of hindsight, there isn’t much they would have done differently. The development of the equity story, writing the prospectus, the marketing and public relations efforts – ‘All went according to plan. We could have hoped for easier market conditions and also in a perfect world the oil price could have been somewhat lower at the time of the exercise,’ muses Thjomoe. ‘Many investors felt that they bought at the top of the current price cycle, but these were market conditions beyond our control.’
A stoical perspective, perhaps, and one which suggests that when you plan to float the corporate ship and the chains have released from the bow, it may be difficult to stop your craft as it slides down the slipway. All you can do is let out a deep breath, just watch it go and hope – as the champagne bottle swings – that your vessel will prove sufficiently buoyant.
