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Corporates

The New Year’s Message for Corporate IR Engaging the Buy-Side for Corporate Access: Keep Talking

The New Year’s Message for Corporate IR Engaging the Buy-Side: Keep Talking

By | Corporates

“With the technology at our disposal, the possibilities are unbounded,” said Stephen Hawking in 1994. “All we need to do is make sure we keep talking.”

Although the brilliant scientist recorded the (otherwise very inspirational) quote for the purposes of a British Telecom commercial, the spirit holds true for corporates and their market partners. 

Corporate access has come a long way in the last decade, especially after sweeping changes brought about by regulations like MiFID II. 

The legislation unbundled costs for research and for corporate access from trading fees at big investment banks. This resulted in increased costs and reduced effectiveness in a lot of IR professionals’ day-to-day.

Surveys and research this past year showed that a strong majority of Investor Relations Officers (IROs) views MiFID II as a net negative when it comes to them engaging investors. Much like on the research side, the changes seem to have impacted small- and mid-cap companies the most. 

Larger firms can afford to continue working with large banks, and they do, because they know they can connect to certain investors and analysts that way. Smaller issuers, on the other hand, have to deal with the added costs and red tape, and seek out ways to get noticed by the buy-side as well as attract analyst coverage.

At the recent IR Magazine Awards – South East Asia 2019 event in Singapore, attendees noted that corporate IR departments need to get more proactive in contacting the buy-side. This is especially important for smaller companies who can’t count on investment banks to connect them like they used to.

The buy-side, which similarly expresses difficulties in connecting with corporate IR teams, has looked for ways to fill that gap. For example, certain buy-side firms set up internal corporate access teams to help drive their outreach, where in the past they relied on such teams within investment banks.

The Answer Is Online

But even that doesn’t necessarily solve the discoverability problem. There are a lot of companies out there, especially in the small- and mid-cap circles, and even dedicated buy-side corporate access teams can’t reasonably be expected to discover your company all by themselves.

This is where Professor Hawking talking about technology comes into the picture. Online networks have brought professionals and companies together in unprecedented ways, allowing for connections that would have previously been either too expensive or too time-consuming to establish.

At Smartkarma, we created just such a network for bringing together investors, analysts, and corporate IR teams. There is a range of online tools and features at an IRO’s disposal 24/7, in a network where analysts (or Insight Providers, as we call them) have already published over 25,000 pieces of research, and where institutional investors visit daily to read research and interact with the platform. 

It’s an all-in-one solution for IROs to initiate, establish, and cultivate relationships with the buy-side as well as analysts. This is possible thanks to in-platform messaging capabilities, seamless collaboration between platform and email, and comprehensive directories and investor-targeting features that help IROs make the right connections.

We also wrote an entire guide for IROs who want to get full mileage out of their corporate access strategy.

Read our eBook: The Cost-Effective Guide to Expanding Corporate Access

Such streamlining of communication avenues is particularly important as 2019 comes to a close. This year, markets started coming to terms with MiFID II’s impact and the European Union announced it will revisit certain aspects of the legislation. What’s coming in 2020 is far from certain – which is why it’s important, as Dr. Hawking insisted, to keep talking.

Find out what else Smartkarma Corporate Solutions can do for your company. Learn more by signing up for a FREE account and experience a brand-new range of services for C-Suite and Investor Relations personnel of listed companies, designed to help IR professionals establish and maintain valuable connections to the investment and analyst communities.

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Beyond the Annual Report: How to Make the Most of Your Company’s Communications

Beyond the Annual Report: How to Make the Most of Your Company’s Communications

By | Corporates

For years, a company’s annual report has been more than a regulatory obligation. It has grown into a veritable event, a chance for the company to shine a spotlight on itself and, dressed in its best, tell its story to the world.

But the practice is a little out of step with today’s world. For one, the blockbuster, printed out book format of the annual report is on its way out. A recent survey by Austrian firm Nexxar showed that in Europe, where the survey was conducted, far fewer companies are putting out printed reports compared to 10 years ago.

Reports published online, in PDF or other digital formats, are taking the printed report’s place. It isn’t just more environmentally friendly, it’s also in keeping with how we consume information nowadays. 

But there’s another important point: In an always-on world where companies have to fight for eyeballs as well as customers, and where information is constantly streaming in, and from, all directions, is it enough to release your annual report once a year and leave it at that?

In Nexxar’s survey, most respondents do exactly that. Only 36.8 percent of them said they send out content from their reports in the weeks and months after publishing. 

“Companies are investing loads of working hours and big sums of money in project parts such as planning, editing, and design but forget about the report communication after publication, contrary to all other communication products,” the firm writes.

Beyond the Annual Report: How to Make the Most of Your Company’s CommunicationsModern Times, Modern Tools

The incongruity is clear: As this kind of information publishing goes digital, the thinking behind the distribution and communication of it remains very much analogue. 

The insights contained in your annual report have a longer shelf life than you think. Facts, stats, figures, and lessons can be plucked, designed, and spun off into fresh pieces of content that you can distribute for weeks and months afterwards. This includes slide decks, PDF leaflets, infographics, videos, and more.

These days, your stakeholders are everywhere all the time, be it shareholders, investors, analysts, or clients. They receive information on their phones, they look for insights on social and professional networks, and they get up-to-the-minute updates on their business and personal interests. 

Most companies that do employ modern-day communication avenues tend to pick the usual ones: LinkedIn, Twitter, EDMs, and so on. While this is absolutely advisable, you might not be getting the most out of your communication potential through these platforms.

Ideally, you’d want a platform where you can share that information and be positive it will reach the right people that can bring value to your company.

An All-in-One Solution

Through Corporate Solutions, Smartkarma enables listed companies to participate in a network where hundreds of independent analysts and institutional investors are already connected. Among many other features, Smartkarma Corporate Solutions makes it easy for your company to publish and share anything from annual reports to analyst presentations and news announcements.

In your dedicated company page, there is space for you to post:

  • Presentations – Annual reports, analyst and investor presentations, earnings results presentations, etc.
  • FAQs – anything you want to communicate or clarify
  • News updates – any developments or announcements you want to highlight
  • Events announcements – share any events you are putting together to draw attention to the company, such as investor and analyst days, earnings briefings, and so on
  • Reports – post reports others have written about your company, based on the information you have shared

This ensures that stakeholders can find a trove of information that you handpicked, all in one place, which you can share with your intended audiences.

The Middle East Investor Relations Association puts it very well in its newsletter: “Given all the hard work behind these key investor sources of information on your company and its business, make the most of your content… if it’s not easy to find, useful, and engaging, why would anyone bother?”

Why indeed?

There is a lot more that Smartkarma Corporate Solutions can do for your company. Learn more by signing up for a FREE account and experience a brand-new range of services for C-Suite and Investor Relations personnel of listed companies, designed to help IR professionals establish and maintain valuable connections to the investment and analyst communities.

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What Companies Going Public Can Learn from WeWork's IPO Disaster

What Companies Going Public Can Learn from WeWork’s IPO Disaster

By | Corporates, WeWork

Depending on how you look at it, WeWork’s botched IPO was a brutal failure… and a resounding success.

No, it’s not some quantum paradox nor a case of Schrödinger’s Listing.

There’s no question that WeWork should never have tried going public in its current state. The predicament forced its major investor to own up to a big miscalculation after SoftBank reported a quarterly loss of US$8.9 billion – a loss that Insight Provider Kirk Boodry highlighted in a recent Insight.

At the same time, as NYU professor Scott Galloway pointed out on the Pivot podcast, the whole debacle is a triumph for capital markets regulation and public disclosure requirements.

Another good thing comes out of this whole situation: Much like the Titanic shipwreck, WeWork’s mighty fall serves as a warning to other companies sailing the IPO waters. Here be icebergs, so you’d better plot your course carefully.

Read Kirk Boodry’s full Insight: Softbank G: We Company Deal Is Wrong on so Many Levels

Clear View

The (already well-documented) fall from grace did not happen overnight, or in a vacuum. It was the result of several problems piling up and finally spilling over. But it was the S-1 disclosures that brought everything to light and opened the company up to scrutiny.

Since private companies aren’t subject to the same disclosures as public ones, it’s hard for outside analysts and investors to have a clear idea of their inner workings. 

In fact, this suits some private company founders and executives just fine. Even if you don’t have WeWork’s severe governance problems, disclosure obligations and being accountable to shareholders might be a distraction for some company heads.

But here’s the thing: If your company is on its way to the public markets, you can’t just batten down the hatches and ask everyone to take you at face value. You need objective third parties who can spread the word about your company – especially if you’re a smaller cap without a universal brand. 

This includes analysts who write about your company because they genuinely found positives there, and investors who are interested in supporting your journey because they are confident that your success can be beneficial to all parties involved.

Being available to answer questions, set the record straight, and take control of the narrative around your company can be a powerful tool leading up to your IPO.

House in Order

For transparency to work in your favour, you must have all your ducks in a row. Ideally, those ducks must be nicely lined-up and single-file by the time you go to IPO, and not all over the pond and sometimes underwater, as WeWork’s ducks were. 

But what this overlong duck metaphor means to say is, it’s never too early to work on your governance. Few companies will have the near-parody-level problems of WeWork, but that’s no excuse for shaky management structures, weird debt situations, and unhealthy workplace cultures.

This is especially important since the WeWork wreck could make investors think twice before going into the next fancy big thing. Speaking on online video outlet Cheddar (as spotted by IR Magazine), Jason Paltrowitz, director of OTC Markets, predicted that investors will dig deeper into companies in the coming year. 

“Investors are really looking below the surface to see what is profitable, what the ownership is doing in a company, and what its plans are for growth and for revenue and for getting to profitability,” he said. “You don’t necessarily have to be profitable, but you have to have a clear plan toward profitability.”

The question of whether to even go public at all, or go public through a direct listing (as per the latest trends) is also something to keep in mind.

Read our blog: The Direct Listing Has Shaken Up Public Markets. What’s Next?

As more private companies have better access to funding, raising extra capital might not be as strong an incentive for them to go public. But the transparency and discipline, not to mention the legitimacy, the public markets bring can make all the difference, especially for small- and mid-cap companies. 

So even as WeWork is going through a major crisis of its own making, there is no reason why others can’t learn from its mistakes. It’s an ill wind that blows nobody any good, as they say.

What if there was a network where companies could be connected to analysts and investors and were able to publish and share news and information about themselves? Luckily, there is! Learn more about how Smartkarma helps you do just that – sign up for a FREE account on Smartkarma’s Corporate Solutions, a brand-new range of services for C-Suite and Investor Relations personnel of listed companies that’s been designed to help IR professionals establish and maintain valuable connections to the investment and analyst communities.

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The Rise of Company-Sponsored Research Benefits Neither Investors Nor Companies

The Rise of Company-Sponsored Research Benefits Neither Investors Nor Companies

By | Corporates

Of all the ills the market has blamed MiFID II for, the drop in research diversity and quality is up there in the rankings. But is company-sponsored research the answer?

Specifically, a large part of the consensus has focused on the drop in quality and quantity of research on small- and mid-cap firms. Such companies need the exposure and the attention of investors that analyst coverage brings them – if no analysts are writing about them, it’s harder for investors to find them and for the market to know about them. 

So several smaller issuers have tried to battle the dearth of coverage by paying analyst firms to produce research pieces about them that will help their Investor Relations (IR) personnel put them on the map.

Read our blog: Self-reflection and Change from Within for the Investment Research Industry: the Real Impact of MiFID II

The trend of company-sponsored research has been gaining ground ever since MiFID II came into force in January 2018. In that time, research houses that specialise in this segment have either seen their revenues rise or their number of customers grow, according to media reports. 

For example, Bloomberg reported that French brokerage Kepler Cheuvreux saw the firms covered by sponsored research rise from 60 to 100 in 2018, and planned to have double that in the next few years.

The FT, meanwhile, last May wrote that the bulk of the research brokers like UK-based FinnCap and WH Ireland produce for corporates is sponsored by those same corporates. For all of them, the percentage of that research has grown since the onset of MiFID II.

This raises all kinds of questions on conflicts of interest when it comes to company-sponsored research. Even though most research providers offer assurances of objectivity and adherence to standards, questions remain.

The value of more small- and mid-cap research out there in the face of the unbundling unravelling is a strong argument for company-sponsored research. It’s the reason why some segments of the market think it’s gaining more credibility, as an article in IR Magazine pointed out.

The problem is, necessity alone does not a compelling argument make. There needs to be more research on small- and mid-cap companies, that much is certain – it’s a glaring gap in the market that needs addressing. But how valuable can it really be for investors?

The Value of Independence

Asset managers from such firms as Amundi SA and RWC Partners have told Bloomberg they are concerned about conflicts of interest and would prefer more independent research providers. 

“Companies will have to get better at talking to investors directly. I think ultimately the longer-term implication of MiFID is going to be a disintermediation impact,” RWC’s Graham Clapp said.

It’s not just investors that need be sceptical about company-sponsored research. Companies also need to ask themselves, is this the best way for them to get their story out there?

Sure, they can make a generous investment in sponsoring research about themselves, but how valuable is this going to be in the long term? If investors find out about a company through a bunch of research it sponsored itself, and no independent analysts are covering it, will they be interested? Has the company successfully addressed the lack of research about its business, or has it just invested in an expensive marketing brochure?

IR departments must focus on cultivating direct relationships with analysts as well as investors. On the one hand, that lets analysts know about a smaller company and they can cover it if it seems relevant to them. Investors, who presumably know and trust certain independent analysts, will value such opinions more, and will also have already started building a relationship with IR that could evolve into a fruitful partnership. 

And the best part is, no one needs to depend on expensive and questionable tactics like sponsored research. What it takes is a unified network that can bring them together under one roof and allow them to interact and collaborate. Smartkarma’s network does exactly that; IR personnel can sign up their companies through Corporate Solutions, and immediately be able to connect with analysts who might take a genuine interest in their company.

Online platforms have solved communication, distribution, and monetisation problems for all kinds of industries – why not this one as well?

That’s why Clapp’s point about companies talking directly to investors resonates. Disintermediation is indeed one of the impacts of MiFID II in the industry – together with a much-needed reality check. But the missing piece to the puzzle is exactly this – a network that brings all stakeholders together.

Learn more about how Smartkarma’s network can connect you to analysts and investors. Sign up for a FREE account on Smartkarma’s Corporate Solutions, a brand-new range of services for C-Suite and Investor Relations personnel of listed companies that’s been designed to help IR professionals establish and maintain valuable connections to the investment and analyst communities.

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The Importance of Independent Analysts to Corporates

Investment Banks Want to Sell Research to Corporates but They Face a Changing Market

By | Corporates

Things used to be straightforward. 

Investment banks provided a range of services to their buy-side clients, bundling a bunch of those services together (investment research included), and pocketing some tidy sums in commission fees. They certainly didn’t have to worry about selling sell-side research separately, much less look for new clients, like corporates – which is what they are doing now.

Things change.

The unbundling of research costs that MiFID II brought led to cascading changes in the market – but in many ways, it simply exposed the problems that lurked there before. 

Now, with profits dropping and margins closing, with analysts and research providers increasingly out of a job and striking out on their own, and with the buy-side afraid to pick up the phone lest they incur charges under the new regime, investment banks like Morgan Stanley and Goldman Sachs are turning to a new potential revenue source: selling research to corporates.

It’s not hard to see why investment banks are going that route. With fees dropping precipitously, the profits among them fluctuate. According to research by Accenture, the top-four players in the world (all based in the US) generate around US$20 billion or more in annual revenue and are profitable, but others are “not earning their cost of equity, partly because they haven’t restructured their business fast enough or haven’t been able to afford necessary investments.”

Persistent Problems

This recent development has met scepticism. The market is wary of sell-side research because for a long time it has maintained a firm hold on the industry. This has resulted in a glut of repetitive research, waterfront reports, and questionable objectivity.

The problems with traditional sell-side and research are important because they will also be present when dealing with corporates.

When it comes to research, the traditional sell-side can offer quantity, there’s no doubt about that. Even with investment banks shedding thousands of analyst jobs, there are still armies of professionals toiling in the mines, extracting reports and analysis out of the market data sediment. People in the buy-side know all too well what it’s like to have their inboxes flooded with PDFs that sometimes aren’t even relevant to their mandates. 

While the buy-side doesn’t think research quality changed much after MiFID II came into force, perhaps this isn’t saying much – other than they probably did not have very high regard for sell-side research.

But this is to be expected – when inexorable demand meets with nigh-unlimited supply, it’s easy to leave quality control out of that equation. The question is, do corporates really want to receive an abundance of low-quality research, on top of all the other communications they have to field?

Conflicts of interest are another big one. Bias in research reports has been a persistent problem. If an investment bank is advising on a particular IPO, does it really want its analysts to put out bearish views on that potential listing?

Imagine, then, not wanting to charge corporates for research that doesn’t paint the company in the best light. With such a track record, who is to tell if corporates are getting their money’s worth or if they’re simply buying feel-good fluff? In a time when corporates seem compelled to care about more than just rewarding their shareholders, it’s even more important for them to get accurate reports about their own company and industry. 

Read our blog: As Global Businesses Get Serious about Sustainability, Research Is Ready for Its ESG Moment

Distribution is also a problem, according to some investment banks. Simon Bound, head of research for Morgan Stanley, told the FT: “We’re set up to distribute research to asset managers, hedge funds, and wealth managers – not corporates.”

This is a clear indication that, even with the sheer firepower and deep pockets that investment banks can bring to the fore, one size does not fit all. 

This means that there is a need for solutions that fill the gap between investors, corporates, and research providers. Technology, data, and an ecosystem that can directly connect all stakeholders are vital elements of such solutions, as well as the ability to be truly independent and free of conflicts of interest.

Luckily enough, there is just such a platform, serving the needs of investors, corporates, and analysts. Sign up for a FREE account on Smartkarma’s Corporate Solutions, a brand-new range of services for C-Suite and Investor Relations personnel of listed companies that’s been designed to help IR professionals establish and maintain valuable connections to the investment and analyst communities.

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How Capital Markets are Embracing Fintech to Capture Future Opportunities

By | Corporates

Fintech startups started out with a mandate to upend the established order of the finance world, which was dominated by large institutions and traditional practices. The drive was to bring new solutions to old problems. Over time, it evolved into opportunities for synergy and collaborations.

Where incumbent financial institutions were either indifferent or hostile to fintech firms’ efforts, in recent years they started welcoming the wave of fresh ideas into the industry. In some sectors, like online payments and international money transfers, fintech startups have been everything from outright competitors to valuable partners.

Now, capital markets are experiencing their own fintech moment. Startups that are redefining investment, data analysis, research, and more, are catching the eye of age-old, heavily regulated institutions like exchanges and investment banks.

A report by EY outlines that financial institutions which are part of the capital markets infrastructure (CMI) are looking to fintech to help them stand against an increasingly challenging environment. 

“Faced with stubbornly high structural costs, heavy capital charges and stagnant revenues, investment banks’ returns on equity (ROE) continue to disappoint. While steps are being taken to transform culture and rebuild trust, progress in these areas takes time,” the report says.

According to the report, rising global trends favour collaboration between traditional players and fintechs. These trends are:

a) the increase of entrepreneurial activity worldwide

b) the rise of truly global economies enabled by favourable demographics and growth rates in emerging markets

c) the convergence of technologies like cloud, big data, mobile, and social

How Capital Markets are Embracing Fintech to Capture Future Opportunities

Cooperation Instead of Competition

As in other areas, fintech startups in the CMI space fill gaps in the value chain or address inefficiencies in the market. Incumbents benefit from fintechs’ fresh thinking and fast pace, offering in return their superior resources and domain expertise.

A study run by the World Federation of Exchanges (WFE) and McKinsey found that most incumbents in CMI think of fintechs as potential partners with whom to unlock new revenues or enhance productivity. Only a very small percentage thought of fintechs as direct competitors.

This cooperation can take different shapes, depending on how closely incumbents want to work with fintechs. The WFE survey showed that most participants prefer to collaborate with such firms, while fewer of them engage in joint ventures and in minority or majority investments.

How Capital Markets are Embracing Fintech to Capture Future Opportunities

Source: WFE-McKinsey Fintech Survey 2017

Recently, Smartkarma received a strategic investment from the Singapore Exchange (SGX). This will allow the Exchange’s listed and upcoming companies access to Smartkarma’s network of Insight Providers and institutional investors, through Smartkarma’s Corporate Solutions range of services. 

For SGX, this minority investment is a strategic move that springs from upheaval in the global investment research market. After MiFID II in Europe, the need for more transparency on research costs and for more independent research, especially on small- and mid-cap companies, has become more pressing worldwide. 

The move rides on “a growing trend towards self-directed and independent research, creating growth opportunities for Smartkarma’s platform that facilitates the use of alternative data and wisdom sourcing in investment research,” according to SGX’s official statement.

Earlier in 2019, Deutsche Börse announced a partnership with Swiss and Singapore-based startup Sygnum, as well as IT firm Swisscom, to develop a digital asset infrastructure. The result of their collaboration is expected to be a marketplace for the issuance, custody, access to liquidity, and banking services of digital assets using distributed ledger technology (DLT).

“Continuing our investments in new technologies and driving the development around DLT forward is a key focus of Deutsche Börse Group,” says Jens Hachmeister, Managing Director, DLT, Crypto Assets and New Market Structure at Deutsche Börse.

While it’s nowhere near a startup, the London Stock Exchange’s move to acquire Refinitiv for US$27 billion also highlights global exchanges’ need to tap into tech-powered intelligence and solutions. 

Future of Finance

Such trends will continue as global developments put up ever-increasing challenges in front of capital markets. From trade war-born uncertainty to fears of a downturn, to new players arising in the world economy, the needs of incumbents are several.

Through these collaborations, CMI institutions can reduce costs, get unprecedented insights with the use of data and artificial intelligence, predict coming trends and customer needs, and automate processes that previously consumed time and resources.

According to the McKinsey report, fintech in CMI may not be as far along as other sectors and the benefits may not seem as tangible just yet. But increased investment in the sector means that early movers will reap the rewards. 

“Those incumbents that do not recognise its impact on their business, and fail to take a proactive stance, face a future that will be shaped by their peers and competitors. For investment in fintech, time is of the essence,” the report concludes.

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Shareholder Activism in M&A Is on the Rise. How Should Companies Respond?

Shareholder Activism in M&A Is on the Rise. Here Are 5 Things Companies Must Keep in Mind

By | Corporates

Echoing increasing shareholder activism worldwide, a rising trend in global markets this year has been activist campaigns with an M&A thesis. 

New campaigns in the first half of 2019 are fewer relative to the same period last year, according to a report by Lazard. But the financial advisory firm notes that close to half of those campaigns were M&A-driven, showing that activist investors guide such deals more and more.

Let’s see two examples that have a common denominator – and a very influential one, at that.

The Icahn Touch

One such event drew a lot of attention mainly because it involved one of the most influential activist investors in the world: Carl Icahn. The merger between casino operator Caesars Entertainment and Eldorado Resorts, worth US$8.5 billion in cash and equity, was announced a few months after the investor pressured the Caesars board for three seats and a say in selecting a new CEO.

Caesars had previously declined an “inadequate” offer for a reverse exchange of its stock for equity by privately held casino and restaurant firm Landry’s, for US$13.50 per share. The deal with Eldorado ended up bringing a whopping 51 percent premium over Caesars’s stock price from the day Icahn started muscling in.

“The stock was clearly undervalued. Icahn saw what others did, but he acted on it,” wrote Howard J Klein in an Insight on Smartkarma in May, almost a month before the deal was announced.

Klein, an experienced analyst and former executive in the gaming sector, tracked Icahn’s calculated advance within Caesars. In his Insight, he highlighted the fallout from the company’s past bankruptcy as one of the key challenges to overcome. 

“[Caesars] has invested billions in what realistically can be seen as non-core assets,” Klein wrote. “These are not necessarily bad assets. Some perform well. But overall they do not register in my experience as the best dispersal of investment dollars that produce the most successful and highly valued gaming companies.”

The new CEO of Caesars, Icahn-backed Anthony Rodio, will likely proceed to “slim down” the new entity, shedding some assets while refocusing on the company’s expected Asian expansion. 

Read Howard J Klein’s full Insight: Caesars Can Be Sold if They Can Produce $500m in Savings–Before a Buyer Says Yes

Another prominent, and ongoing deal, has also seen Icahn’s involvement in the proceedings. Occidental Petroleum announced it would acquire Anadarko Petroleum in a US$38 billion transaction, after a bidding war with Chevron earlier this year. 

The problem was that the merger hiked up Occidental’s debt to US$40 billion amidst already existing pressure from shareholders and investors, according to Reuters. Occidental’s stock plunged to a 10-year low after the company announced the deal.

As the deal goes to a vote from Anadarko shareholders next month, Icahn (an Occidental investor) has been vocal against it, even suing the company to get access to records regarding the deal. Meanwhile, Occidental CEO Vicki Hollub has been hard at work to sell off assets in order to relieve some of the debt. 

So far, the biggest breakthrough has been the agreement to sell Anadarko’s Africa-based assets to French Total SA for US$8.8 billion, but Hollub has insisted she will continue looking for ways to cut costs and make the most of Anadarko’s assets. 

Game Plan

As we have seen, activist initiatives can go either way in M&A. While activist investors are involved in a tiny fraction of overall M&A deals today, it’s becoming enough of a trend that company management needs to be aware of it. Here are five things that management must keep in mind in this regard:

Maintain a 360-degree View

Is the company a potential target for an acquisition? Is it operating too many units that weigh down the bottom line? Are there weak points in its structure? Are there areas where an activist could find solid ground to launch an initiative? Management should try to think as an activist even before one shows up. 

Let’s remember McKinsey partner Tim Koller’s words from our previous blog: “Am I comfortable not responding to what even a hypothetical activist would do? Am I the best owner of the businesses? Am I growing the businesses adequately? Am I cutting costs where they need to be cut? Am I returning cash to shareholders when I don’t need it? So it’s much more a matter of doing it yourself.”

Know the “Opponent”

Activist investors have different ways of doing things. Anyone dealing with Carl Icahn, for example, knows that he tends to push his agenda and he doesn’t mince words in public. Other activists have different styles – they might be more subtle, seeking to exercise control behind the scenes through key appointments. 

Or they might just be seeking to understand more about the business, because management is being opaque and not forthcoming. Understanding how investors operate and what they want to achieve is pivotal to ensure investor and company goals are aligned.

Be Ready to Answer Questions

When an activist launches an offensive, it can be because they have their own agenda to pursue, or they might simply need more clarity on the company’s strategy. Whatever the case, management should have their strategy clearly outlined and ready to communicate to investors and shareholders.

What is the company doing to overcome particular hurdles pointed out by shareholders? What is its strategy for future growth? How exactly does it plan to cut spending, if necessary? What are some strategic moves it’s undertaking (acquisitions, investments, and so on)? The more detailed the strategies, the greater the chances to hold off activist campaigns.

Cultivate a Diverse Network

A diverse shareholder roster and strong relationships with the ecosystem are particularly important. They ensure that, when an activist campaign is underway, the company can present its side of the story and count on its allies to fend off attacks. If it has managed to build up enough good will and trust among its shareholders in times of peace, it’s more likely to weather activist campaigns or work with activists more effectively to advance their common goals.

Keep Communication Lines Open

For all of the above to be effective, consistent and open communication avenues need to be a priority. Whether it’s sharing reports, outlining growth initiatives, or explaining setbacks, management needs to deliver the message directly to shareholders, investors, and analysts. This reduces the chances of misconceptions and false narratives arising and gives management greater control to shape the company’s story.

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What This Activist Investor Who Was Feared Throughout Japan Can Teach About Positive Change

What This Activist Investor Who Was Feared Throughout Japan Can Teach About Positive Change

By | Corporates

In a previous blog post, we saw a report from Activist Insight that outlined how shareholder activism is a growing trend in Asia as well. The research found that Japan has seen some of the most instances of shareholder activism in the region from 2013 onwards. 

It’s perhaps fitting, then, that one of the most notorious Asian activist investors of the past two decades is Japanese.

Yoshiaki Murakami’s name used to strike fear in boardrooms throughout Japan – at least until a fall from grace in 2007. His reappearance and renaissance in recent years signifies a shift in how corporates are dealing with shareholder activists.

Pioneer Activist

A former government employee, Yoshiaki Murakami decided to set up his own fund in 1999. He claimed that his time in Japan’s trade ministry drilled into him the importance of good corporate governance. 

As a shareholder, he became one of the most vocal supporters of activism and change in companies, which he felt were underperforming. His style was highly unusual in the country, where the general tendency of shareholders was to not get directly involved in management affairs.

As a result, he made a name for himself in tussles with companies like transportation and property conglomerate Seibu Railway and the Osaka Securities Exchange.

He became famous for demanding greater returns for shareholders and “showing how capital markets, including management-shareholder relations, should be,” according to his own statement. 

Part of his credo, which should be illuminating for any corporate dealing with shareholders, was that cash flow is for a company akin to blood flow for a human body. “The flow of money is essential for the growth of corporations, and there are negative side effects to the health of a corporation if this flow is blocked,” he said.

Responding to concerns that his investments caused market speculation, Japanese regulatory authorities changed reporting rules so that investors had to report shareholding acquisitions larger than 5 percent. 

His fund came to be worth JPY 444 billion – then it all came crashing down in 2007, when Murakami was indicted on allegations of insider trading.

A Return to Activism

Yoshiaki Murakami reappeared in recent years to once again take an active role in corporate governance. An attempt to appoint outside directors in Kuroda Electric in 2015 was a return to form for the activist, even though it did not succeed.

He was more successful last year, when he stepped in to solve a merger block between oil refinery firms Idemitsu Kosan and Showa Shell Sekiyu. The companies had been locked in a dispute between the founding family of Idemitsu and Showa Shell management. 

Murakami acquired a stake in Idemitsu so that he could take part in the deal as a shareholder, instead of just being an outside advisor. He managed to convince the founders to let the integration go forward, while also getting some concessions for shareholders.

The merger was successful, going into effect just this week, with the combined entity now counting Saudi Aramco as its second largest shareholder.

More recently, Murakami was involved in the management buyout attempt of Kosaido, a group that includes, among others, a printing business and a funeral parlour business.

The group faced a takeover by Bain Capital, but Murakami and his group of companies launched a tender offer to grab a majority stake.

Although the tender offer failed, Kosaido moved quickly to overhaul its corporate governance structure, according to Murakami’s proposals and recommendations, and cleaned up the board while removing CEO Tsuneyoshi Doi.

Having written extensively about the deal for months, Insight Provider Travis Lundy hailed the latest development as “good news” in his latest note, although he remained skeptical of a stock price hike.

Read Travis Lundy’s full Insight: Kosaido Moves Quickly Post Failed Tenders

Making the Most of All Stakeholders

The changing face of shareholder activism in Japan reflects a broader trend in Asia. As the region attracts ever more international investment, corporates must be aware of the implications.

Activist incidents like the ones spearheaded by Yoshiaki Murakami ingrained in Japan the need for companies to be more transparent and open about their corporate governance. Efforts by Shinzo Abe’s government, as well as an acknowledgment that shareholders reward companies that take the necessary steps to improve, came as a result of such activities.

This doesn’t just mean a solid corporate governance structure that brings value to the company and to shareholders.

It also requires an awareness of the overall ecosystem around the company; the investors, analysts, competitors, and yes, activists who tug and pull at the company from all sides. 

If company management is to successfully navigate the market waters, it needs to pay attention to all these stakeholders – and, as Yoshiaki Murakami has shown on many occasions, to make the most of their influence.

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How Pension and Wealth Funds Redefine Shareholder Activism Worldwide

How Pension and Wealth Funds Redefine Shareholder Activism Worldwide

By | Corporates

Shareholder activism can take many shapes. The concept is mostly associated with go-getter investors like Carl Icahn, storming into a company’s board demanding change or ousting ineffective CEOs.

But there are other ways in which investors and shareholders exercise influence on company boards. More and more lately, shareholders have more specific demands from companies they invest in – demands that revolve around environmental, social, and governance (ESG) principles.

Activist Pension Funds

Foremost in such board activism tend to be investors like sovereign wealth funds or pension funds. The California Public Employees’ Retirement System (CalPERS) was one of the first such funds to lay down governance and sustainability principles for investee companies.

“[We] firmly embrace the belief that strong, accountable corporate governance means the difference between long periods of failure in the depths of the performance cycle, and responding quickly to correct the corporate course,” the fund states.

Among CalPERS’s recommendations for companies are having clear CEO succession processes, appointing independent directors to review significant transactions (ensuring they align with the company’s best interests), and assurances of voting rights for shareholders on major company decisions.

The fund has seen steady returns of about 7 percent on its investments over the last 20 years, which lends credence to its practices. In the process, it has inspired other similar institutions to follow its lead.

Its New York counterpart, the New York State Common Retirement Fund, has been pressuring Exxon Mobil’s executives to do more on climate change, including creating a climate change committee on the board. In a filing in May, they said that Exxon’s response on climate change was “inadequate,” which was a “serious failure of corporate governance.”

The Scandinavian Touch

Across the Atlantic, Norway’s Government Pension Fund Global places great emphasis on governance and corporate responsibility in the companies it invests in. “We aim to contribute to well-functioning markets and good corporate governance,” reads one of its mission statements.

The fund expects good governance particularly in areas like climate and the environment, anti-corruption, tax and transparency, and human rights. It has invested in 9,000 companies across 70 countries, which gives it a global outlook.

“The dialogue we have with companies and their boards is among the most important tools we have as an investor,” says Carine Smith Ihenacho, Chief Corporate Governance Officer for the fund.

If a company does not fulfil the stated standards, the fund is not afraid to take a firm stance. It has excluded companies for missteps like gross corruption, environmental damage, and human rights violations – things that happen because of bad governance.

Collaboration is harder when a company operates in a specific sector – for example, “sin” markets like tobacco and alcohol. Norway’s KLP pension fund announced last month it would divest from companies in alcohol and gaming, such as AB InBev and LVMH.

There isn’t a lot these companies can do in such an extreme case, short of changing their businesses altogether. But they can still control their messaging to show what efforts they are making to be sustainable and responsible, despite being part of “sinful” sectors.

Long-term Relationship

What can company management take away from such investors?

In a 2015 interview, McKinsey partner Tim Koller recommended that companies should look at themselves from the point of view of an activist and ask what they would do differently in order to create value.

“Why am I not doing that, and am I comfortable not responding to what even a hypothetical activist would do? Am I the best owner of the businesses? Am I growing the businesses adequately? Am I cutting costs where they need to be cut? Am I returning cash to shareholders when I don’t need it? So it’s much more a matter of doing it yourself,” Koller mused.

Koller emphasised that activist investors that are there for the long haul can bring a lot of benefit to the company. “They may hold onto an investment for five to seven years, work with management… They’re well prepared, they ask good questions, they do research. And they have a longer horizon perspective, so it’s not just about cutting costs,” he said.

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Shareholder activism strategy

Shareholder Activism Is Evolving. Your Strategy Must, Too

By | Corporates

When you have shareholders, you are accountable. We don’t foresee any glasses dropping in shock at this revelation, but nonetheless, it’s a reality for every company – doubly so for listed ones.

If company management does not prove itself quite up to the task of running and growing the company, or isn’t communicating its efforts well enough, sooner or later, there will be shareholder activists to contend with. Depending on the situation, they might try to nudge things towards the direction they believe is best for their investment, or even try and take matters into their own hands.

As widespread as shareholder activism is, it’s interesting how many companies simply don’t seem to take it into account – or, if they do, have no set plan for dealing with it.

According to research by consultancy Alix Partners, only 10 percent of company executives who were asked are confident they could stand up to activists. And even though a significant majority of executives are concerned about the rise of shareholder activism, more than half of them have no plans in place to go up against it.

The research involved listed companies across the European Union. Executives interviewed for the report pointed out that technology makes it a lot easier for activists to catch them unawares. “These days it is easier to stir up activism. Like-minded groups are instantly connected and able to mobilise,” they said.

That’s in Europe, which, alongside with the US, has historically been a market where shareholder activism flourishes. But activism has been on the rise in Asia too, as noted by aptly-named consulting firm Activist Insight and an in-depth report on Nikkei Asian Review.

According to Activist Insight, investor activism climbed nearly 20 percent in Asia in 2018 – even surpassing Europe when it comes to activist activity. And while the consultancy has observed a relatively quieter first quarter in 2019, this is not the time for management to get complacent.

Join the Race

It’s not only activist shareholders who can play the instant communication game. Company management and investor relations professionals must be on top of the situation, using the resources at their disposal. Not only can they confront activism when it happens, they can also prevent it from arising through transparent communication and careful management.

Market specialists, from PwC to Harvard, have outlined ways in which management can be ready for activists. We have written before about some best practices for investor relations ourselves: be transparent. Be open to contact. Cultivate and nurture valuable relationships.

Using tech platforms and tools, you can tell your company’s story and make sure it reaches the people you want. You can contact your shareholders anywhere, at any time, keeping them updated with relevant information and disclosures. You can keep an ear to the ground about what people are saying about your company, whether that’s stakeholders, media, or analysts.

When a challenge does come, being ready to face it head-on can yield more value for all stakeholders.

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