Archive for February, 2009

Go out & play defense!

February 26, 2009

The rummage sale level of stock prices has produced an uptick in hostile takeover activity – and in the fear of unwanted suitors – according to the March 2009 issue of Mergers & Acquisitions magazine. As might be expected, there’s a step-up in defensive play among CEOs, boards and investor relations people:

Until last year, the activist investor community had seemingly convinced companies that shareholders rights plans and the cherished poison pill were against the best interest of shareholders. However, as hostile activity seems to be ramping up, management teams are returning to more aggressive defense strategies.

(Poison pill defenses, for example, surged in late 2008 after several years in decline. According to FactSet Sharkrepellent, December saw 28 poison pill adoptions, the most in any month since 2001. Full-year 2008 adoptions of 127 poison pills were the most since 2002, FactSet says.)

M&A writer Avram Davis notes that lawyers often are the key players on defense. They encourage measures like language in bylaws to require advance notice of proposals for shareholder meetings, safeguards against activists’ calling their own meetings, and systems for tracking flow of confidential information to prevent its use against the company.

Another defensive strategy goes to the heart of investor relations:

Perhaps the easiest protection against hostile takeover attempts is among the least practiced – shareholder communications.

Joseph L. Johnson III, chair of the M&A and corporate governance practice at Goodwin & Procter LLP, tells M&A many companies have gotten out of the habit of meeting regularly with shareholders. Johnson (no relation) says this is dangerous, because you can be sure a hostile bidder will be actively reaching out to your investor base.

‘I’ve been telling people for years, it’s like you’re running for Congress,’ says Johnson. ‘You need to get out there and press the flesh.’

Staying in close touch with investors is essential. And going out to address concerns and explain the business strategy is the best way to communicate that management is serious about creating value.


Quote, unquote – Let’s be boring

February 25, 2009

“Boring is the new sexy.”

I like this comment by Gail Cohen, a Fiduciary Trust Company International executive, who told the Wealth Watch newsletter of Trusts & Estates magazine that trusts and high-net-worth individuals are more drawn to dull stability now than the sexy alternatives they formerly chased. Wealth Watch adds:

Fiduciary Trust isn’t alone. A handful of stick-in-the-mud private banks, wealth management firms, trust companies and others who didn’t indulge in sub-prime loans or other toxic investments, are also experiencing a quantum leap in new clients looking for a safe home.

Maybe investor relations folks could try this message: “We’re boring.” Doesn’t work for everyone – but for some it might be the new sizzle.

This isn’t good …

February 23, 2009

angry_grizzly_istockSo the bear market reasserts itself. In an ugly two weeks, the S&P 500 finally breaks below its 750-ish autumn low, back to 1997 levels. Bad news echoes and re-echoes. We’re on Financial Bailout 3.0 or 4.3 or … well, big banks almost want to be owned by Uncle Sam. Automakers swoon. Fear rules. President Obama puts Joe Biden in charge of reviving the economy.

What’s an investor relations person to do?

1. Hold fast. Hang onto your job, of course, to the extent that it’s under your control. More to the point, hold fast to your company’s story. How is your business planning to survive hard times – and make shareholders a bundle of money when the economy does get better? This is the “hope factor.” Keep telling it.

2. Remember that it’s not about today. The investors you want on board are focusing on 2010 or 2011, and this should be your focus with the market. A NYSE floor broker tells the Wall Street Journal today, “This isn’t an investing market anymore, it’s a trading market.” While investor relations feeds timely information to everyone, we’re really about providing the longer term story to longer term investors.

3. Be calm and factual. You shouldn’t hype the story (no one would believe that now anyway). But neither should you convey despair. What is your best, most realistic assessment of the current business environment? What macro factors actually drive your business, up or down? What are you doing to maintain or improve your market position, and to be profitable? What are you doing to reduce your cost structure? To improve your balance sheet? What are the risks? We should be students of these questions.

We’d like to think the market has to be headed up from this point, but it may not be. Meanwhile, we need to keep talking to people.

I shared some other ideas on “bear market IR” in earlier posts here and here and here. Please feel free to add your ideas, experiences or reactions by commenting on this post (anonymous is fine). And good luck!

© Copyright 2009 Johnson Strategic Communications Inc.

Madoff – “no reputation risk”?

February 12, 2009

madoffsBernie Madoff has pretty much replaced Paris Hilton and Britney Spears as a source of celebrity scandal news. Amid the pervasive chatter, an ironic anecdote comes out today in a Yahoo! TechTicker interview with James Altucher, managing partner of Formula Capital.

Altucher describes making a pitch in 2005 to try to get Madoff and his son Mark to put money into Altucher’s fund of hedge funds:

I went through the whole pitch, my returns were great, they were very excited. But, they said, James we love you, but we cannot invest in your fund of hedge funds. And I said, Why not? They said, Bernie and Mark both said … Here at Madoff Securities reputation is the most important thing. And to have that money go out there, and you’re sending that money out there, we have no idea about the hedge funds you’re in. We cannot take any reputation risk. There is no Wall Street headline risk here. Reputation is the most important thing.

Well, there’s reputation risk – and then there’s reputation risk. Most people would never flirt with the dishonesty Madoff embraced, much less tempt fate by making pious comments about reputation. But sometimes the biggest liars start believing their own tales.

Mad Money = sad money, Barron’s says

February 9, 2009


Enjoy the manic entertainment experience of CNBC’s Mad Money – but don’t count on getting rich based on host Jim Cramer’s advice – Barron’s recommends in this weekend’s edition. In “Cramer’s Star Outshines His Stock Picks,” the weekly says the TV stock jock’s Buy/Sell calls are “wildly inconsistent” but, overall, perform substantially worse than a passive investment in the market.

Cramer would no doubt disagree, but Barron’s at least bases its conclusion on some serious number-crunching of his stock picks:

Cramer’s recommendations underperform the market by most measures. From May to December of last year, for example, the market lost about 30%. Heeding Cramer’s Buys and Sells would have added another five percentage points to that loss, according to our latest tally.

To his credit, Cramer’s Sells “made money” by outperforming the market on the downside by as much as five percentage points (depending on the holding period and benchmark). His Buys, however, lost up to 10 percentage points more than the market.

Barron’s also says stocks Cramer highlights as Buys tend to have gone up in the days before the call, and the reverse with Sells. The paper speculates on whether that points to advance leaks of broadcast plans – a serious allegation – or merely Cramer’s preference for calling stock moves based on the momentum of “what is working.”

Investor relations folks seem to regard Cramer as comedy, or aggravation, or both – but not a serious source of investment advice. If Cramer was serious, he wouldn’t yell so much or use funny sound effects. Even mentions on his show are a short-term event. But the Barron’s piece offers a more reasoned analysis of Mad Money and its picks than I’ve seen so far.

Aggressive activists usually succeed

February 7, 2009

No one on the corporate side wants to get that confrontational call or letter from a hedge fund or investor demanding a change in management. But a paper by two New York University profs in the February 2009 Journal of Finance concludes shareholder activism works – for shareholders, that is.

The study draws upon 151 hedge fund activist campaigns from 2003 to 2005, plus a second data set of 154 activist efforts spearheaded by individuals, private equity funds, VCs or other asset management groups. All of the campaigns studied involve aggressive calls for change such as gaining seats on the board, replacing the CEO, stopping a merger or pursuing strategic alternatives. Symbolic or minor changes aren’t included.

The authors look at stock price movement around the activists’ declaration of intent in a 13D filing and in the year following, as well as the types of change demanded and achieved.

The results?

  • Stocks of companies targeted by hedge fund activists earn a 10.2% abnormal return in the period around the filing of the 13D. Those facing other kinds of activists outperform by 5.1%.
  • Superior returns persist in the one-year period following the 13D. Hedge fund campaigns deliver an average 11.4% abnormal return after a year, and other activists’ interventions result in 17.8% outperformance.
  • When it comes to getting management to make the proposed changes, aggressive activists are more often successful than not. Hedge funds pushing a confrontational agenda win 60% of the time, and other investors achieve their objectives in 65% of the campaigns. Most commonly, they win board seats by threats of proxy contests.
  • Hedge funds often target more financially healthy companies and often demand cash payouts or share repurchases. Other activists are more likely to focus on changing strategies or spending priorities.

The study doesn’t focus on defensive strategies for companies – just outcomes. Prevention may be the best defense. In a time of depressed equity prices, management and boards should be taking actions (without anyone demanding change) to bolster shareholder value … reducing costs, strengthening the balance sheet, making needed changes in leadership.

Investor relations professionals, I suspect, can help mostly by serving as a timely and outspoken voice to convey shareholder concerns up the line – before anyone declares war through a 13D. Now, more than ever, IR should be listening and providing a conduit to management and the board.

Quote, unquote – Wishing for ‘flat’

February 3, 2009

“Flat is the new up.”

– W. Russell Welsh, president,
Polsinelli Shalton Flanigan Suelthaus law firm
quoted in The Kansas City Star, Feb. 3, 2009, p. D15

Although Kansas City lawyer Russ Welsh is discussing the state of the legal biz amid the recession, he captures the mood that many industries – and the financial markets – are feeling in this economic winter.

Update your website

February 2, 2009

Getting caught with stale information on your website is an embarrassing – and usually preventable – moment. Investor relations can lead the way in protecting the company reputation by keeping that website up to date – or ensuring that someone is tasked with monitoring the corporate site.

The latest slap at a company website comes from Thomas Brown, a hedge fund guy writing on the blog. Brown has been on the warpath against Bank of America and its CEO, and he takes another slap today in a post called “Ken Lewis’s Web Bio: Update Urgently Needed.” 

The B of A executive bio Brown cites gives Lewis implied credit for big increases in revenue, profit, assets and shareholder value …

During his tenure, Bank of America has improved customer satisfaction significantly across every major line of business; annual revenue has increased from $33 billion to $66 billion; annual profit has increased from $7.5 billion to $15 billion; assets have increased from $642 billion to $1.7 trillion; market capitalization has grown from $74 billion to $183 billion; and total annual shareholder returns (including stock price growth plus dividends) have averaged 13.3%, doubling peers, the KBW Banks Index, the S&P 500 and the Dow Jones Industrial Average over the same period.

… except that it doesn’t cite a time period for those stellar results.

Anyone who hasn’t been lost at sea knows that shareholder value in the banking biz – and for B of A – hasn’t been growing of late.

Brown refutes the rosy results point by point. That $138 billion market cap for BAC? It’s dropped to $38 billion, says Brown (closer to $30 billion after today). And the 13.3% annual total shareholder return? Brown calculates average total return as negative 18% per year during Lewis’s tenure as CEO.

I’m not into kicking a bank when it’s down, or siding with the hedgies. Generally, blending financial metrics into corporate descriptive material seems like a good idea – perspective and all that. But letting it go stale? Let’s just say it gives ammunition to the critics.

Best practice would assign responsibility for monitoring web content to someone who’s part of the company’s messaging process, whether it’s a person in IR, corporate communications or an outside firm. (The task should not go to a tech person or web designer, whose skills are not in financial communication.) 

This has to be an ongoing maintenance commitment. And you must decide a comfort level for how often to check and update the site: quarterly would make sense, at least, maybe monthly or a continual loop process.