Some IROs really take responsiveness to heart. Suffering from sinus troubles and in the midst of preparing to jet off to Munich the next morning, Kiran Bhojani still takes time to respond to questions about how he’s handling the IR behind one of the biggest deals around.
‘You make sure you know everything about the business and strategy,’ says the head of IR for Düsseldorf-based energy giant E.ON. ‘I was involved right from the start, so I know every aspect of the transaction including the legal and regulatory details.’
On February 21, E.ON launched a €29.1 bn ($34.72 bn) all-cash bid for Spanish utility Endesa. The offer topped a previous bid by Spain’s Gas Natural by about 30 percent. ‘We immediately went on a roadshow to Frankfurt, Paris, London; we hit all the major markets in Europe and the US to speak to our shareholders,’ reports Bhojani. ‘They said, Thanks for coming by and explaining your strategy. They really appreciated it. Don’t wait to go on the road.’
The company now awaits regulatory approval of the deal from Spain’s National Energy Commission, which was granted wider powers in the wake of E.ON’s bid. With such a straightforward all-cash offer, the only real concern raised by shareholders during the roadshow was whether the Spanish government would block the deal, says Bhojani. ‘There are a lot of things working in the direction we’d like to see,’ he adds. The European Commission, for instance, is reviewing the validity of new powers given to Spain’s energy regulator.
While IR’s job is not to meddle in political grandstanding, such spectacles can be hard to avoid when it comes to large M&A deals in Europe, where national government agendas often clash with broader European market concerns. But, as Bhojani says: ‘We stay out of politics – we are business people.’
One step ahead
As ‘business people’, IR professionals need to stay on top of the strategy and keep investors and analysts continuously informed. ‘It’s very simple and very complex,’ says Martine Hue, who heads IR for Luxembourg-based steelmaker Arcelor. ‘We have to inform our investors and repeat endlessly what we have achieved in four years in terms of profitability and growth, which has all led to free cash flow that has to go to investors in different forms like dividends and buybacks.’
Hue sits on the other side of one of the most closely watched deals today. She’s heading the IR strategy behind Arcelor’s defense of a €19.9 bn hostile bid by Mittal Steel. It’s been a series of group and one-on-one meetings for Hue and her management team and, on this late March night, they’re hosting a gala event for 1,000 retail shareholders where CEO Guy Dolle will tell the story yet again.
But telling the equity story – repeatedly, and in a very short period – is nothing new for experienced IROs. What can leave one a little breathless is the incessant demand for information from hedge funds and arbitrageurs.
In the Arcelor-Mittal fight, there are no shares available on the Mittal side, so arbs are not a concern – but hedge funds are watching like hawks. ‘You have the hedge funds that are waiting for an improvement on the offer made by Mittal, and if that should happen, you have two categories of hedge funds: those that will stay and those that will bring their shares to Mittal,’ says Hue. ‘It depends on the information you get from both sides.’
‘Our deal was a full stock deal, so there were people taking positions in one or the other stock and the phones were ringing fairly regularly,’ reports Julie Dill, VP of investor and shareholder relations at Charlotte, North Carolina-based Duke Energy, which is acquiring Cincinnati-based Cinergy. ‘The hedge funds and the arbs were really just pushing to try to see if we would break and give some added insight,’ she adds. Fortunately, says Dill, her team was well trained ‘to stay on message’.
Shark watch
In big transactions, hedge funds are clearly a force to be reckoned with. ‘You have to talk to them and meet them, and make specific efforts to adapt information to those people who sometimes won’t vote or probably won’t be shareholders at the time of the formal offer,’ says Matthieu Simon-Blavier of Georgeson Shareholder Communications.
Based in Paris, Simon-Blavier is currently working on the defense side of the Arcelor-Mittal bid as well as representing other big names like Gas Natural and Suez. He says the key with hedge funds is finding out who they are and why they have taken a stake in the company.
Following the Deutsche Bourse coup last year, where hedge funds blocked the exchange’s bid for the London Stock Exchange and forced out its top two executives, it’s important to be aware that some hedge funds will buy up a chunk of shares and take an activist position. ‘Then you have others that are not voting at all,’ notes Simon-Blavier. The key is to distinguish one from the other.
Proxy advisors can often provide a link between IR and hedge funds. Once hired, Simon-Blavier’s firm receives calls from hedge funds asking about a client company’s strategy. ‘We contact them, but at the same time, some are calling us knowing we are advising the company,’ he says. ‘They may want to meet with the company or receive their latest information.’
The ‘X’ factor
For veteran M&A specialists, there are few surprises when it comes to these deals. Simon-Blavier says the only twist in the Arcelor-Mittal fight is the media’s behavior. ‘All the focus has been on Arcelor, but no one knows much about the Mittal side because we don’t have a history in terms of governance,’ he says. Specifically, the fact that the Mittal family owns more than 80 percent of the voting rights should be a concern to potential holders of the company, he adds.
The media also played an unexpected role in Washington Mutual’s acquisition of Providian Financial last summer, when a major shareholder went public with its opposition to the bid. On August 1, Putnam Investments, one of Providian’s major holders, put out a release saying Washington Mutual’s bid was too low. ‘When Putnam put out that press release, everything moved up a notch as that was almost unprecedented,’ Providian IRO Jack Carsky told IR magazine in September.
The media jumped on the story following Putnam’s release, criticizing Institutional Shareholder Services’ (ISS) role in the deal and suggesting that shareholders were giving up their right to an independent assessment of the bid by accepting Washington Mutual’s offer. ‘We thought there may be some shareholders not satisfied with the price offered, but we didn’t think they would be so vocal and visible,’ explains Alan Magleby, senior vice president of IR at Washington Mutual.
While heading IR at JPMorgan, Magleby never experienced such action by a major shareholder. ‘It seemed there was a piling effect from a media perspective, but we had worked closely with ISS and ratings agencies and they were comfortable that the price was fair,’ he says. In the end, the bid went through with 83 percent of total voting shares approving the deal.
The majority of IROs won’t experience the intensity of a high-profile M&A transaction that comes complete with front-page news stories, political strife, regulatory hurdles and swarms of sharks eagerly waiting to make a fast buck off any tidbit of information. Still, the same principles apply for small deals in terms of IR strategy.
‘You need to show the market that you are on top of the defense – or offense – situation from an IR point of view,’ advises Mark Simms, managing director of London-based independent capital markets intelligence specialists Capital Precision. ‘Then you become a valuable commodity.’
In the loop
A good way for investor relations people to shine is by reaching out to investors and analysts immediately and keeping them closely informed the whole way through. ‘Sometimes the best learning experience is a baptism of fire,’ comments Richard Dietz, SVP of IR for AT&T, which has a bid out to buy smaller telecom company BellSouth. ‘But we are very disciplined in preparing the IR activity around these kinds of deals.’
In announcing the BellSouth offer, AT&T had an analyst call with a variety of experts explaining the deal at length, including how it would impact the company’s guidance. ‘We understand how important it is for analysts to understand what we are trying to do and why,’ adds Dietz.
‘Investors want to look in the eyes of the CEO, hear them explain the strategy and see them be open and transparent about when they made the decision and how,’ says Bhojani. ‘We have to explain thoroughly the advantages of Arcelor and why it’s important to stay an Arcelor shareholder,’ adds Hue.
At the end of the day, as Hue points out, investor relations ‘doesn’t drive the bus’. But an IRO’s reputation certainly depends on how well and quickly stakeholders are informed throughout the ride, which comes back to the crucial issue of responsiveness. When taken to heart, it forms the backbone of exceptional IR, in any situation.
