IR Monitor – Monday 28th September
Investor Relations News
This week, we begin by discussing ‘poison pill’ tactics employed by a company in response to a hedge fund’s purchase offer. We then explore a blog post detailing whether ESG really does hold intrinsic value, before turning our attentions to a study regarding corporate purpose. We then look at opposition to an SEC proposal regarding 13F disclosures, before delving into the view held by many in the academic community that small companies tend to outperform large ones. Penultimately, we assess how working from home could pose an bigger threat to the City of London than Brexit, before closing with an insight into Blackrock’s new policy that aims to quell conflicts of interest.
This week’s news
Poisoned activism
Elliott Management may have played its cards wrong in its offer to buy the $2bn technology company Cubic, Reuters Breakingviews reported. The hedge fund quietly amassed a 15% interest in Cubic before offering to buy the company, rushing Cubic to deploy a poison pill to thwart the bid. The article notes that Elliott automatically put Cubic on the defensive by taking a stake before approaching the company, and that the poison pill should buy the company time to consider options. Other shareholders are more likely to now push for a sale, but the article argues that Elliot’s ambush may leave Cubic looking elsewhere for acquirers.
Sounding good or doing good?
A recent blog post from Aswath Damodaran, Professor of Finance at the Stern School of Business, delved into the value of ESG, questioning whether it is truly beneficial for companies, investors and societies. ESG, Damodaran asserts, may be no more than a product of the hype that surrounds it, and he suggests that the evidence supporting claims of its prowess is both ambiguous and inconclusive. He concludes by remarking that companies are at risk of investing time and money into their quest to be perceived as morally “good” at no proven financial advantage – and with many ending up no more socially responsible than they were before. The quest to sound good was criticised from the other direction by The New York Times which reported that companies are failing to follow through on their corporate pledges for social changes, many of which have been under the spotlight due to the pandemic and the movement for racial justice. The article suggests that shareholders will always be the priority for corporations and that a rejection of short-term shareholder interest for the benefit of society may still be a way off for many corporations.
Opposition to SEC disclosure proposal
Financial Times reported the fallout from a Securities and Exchange Commission (SEC) proposal that would see all but 550 of the world’s largest investment managers relieved of their obligation to disclosure their stock market holdings. The proposal would compel only investors with assets of over $3.5 billion to submit quarterly 13F filings, a high bar compared with the present hurdle which is set at a mere $100 million. The SEC has drawn criticism from the likes of BP, Alibaba and FedEx over this, with a total of 381 companies having subsequently signed a letter opposing the measure. Not only is the proposal deemed contrary to the SEC’s regulatory agenda, but it is feared that it would allow activist investors to silently build up stakes in target companies.
The company size myth
It’s been a source of hope for companies and investors alike at the smaller end of the market. However, a Bloomberg Opinion piece by John Authers suggested that the ‘small company effect’, whereby small companies are thought to outperform bigger ones, never truly existed. Citing performance data on UK small and large-caps since the 1990s, Authers reveals that the only reason smaller companies led in recent years was because the largest British companies tended to be in ‘unpopular’ sectors – such as banking, energy or materials. Moreover, the article suggests that small-caps tend to be under-researched, meaning that their stocks are often mis-valued but they may just as likely be too expensive as too cheap. Authers concludes by saying that none of these findings should discourage investment in smaller companies, but that such companies should not be expected to do well due to their size alone.
The threat to the City bigger than Brexit
Financial Times reported that city employees working from home for the foreseeable future may present an even bigger test for the City of London than Brexit. Government guidance urging employees to stay at home has meant that the number of offices expected to fall vacant within 12 months has risen by almost a third. Newly rented office space in the City in August has fallen to roughly a tenth of what it was when compared against the average monthly rate in 2019. Additionally, the article mentions the impact that home working could have on trainees, for whom absorbing information while sat in the office is a thing of the past. Finally, it is said that tight personal connections that have helped the City withstand past crises are being whittled away, with employees unable to return to offices on the back of government guidance. “A world-beating cluster is worth more than the sum of its parts, thanks to tightly packed and interconnected businesses and services.”
And Finally …
BBC News reported on Blackrock’s new policy whereby employees must disclose any relationship they have at any “service provider, vendor, or other third party (including a client), if the non-BlackRock employee is within a group that interacts with BlackRock”. The policy, shared with employees in a memo, is in place to prevent conflicts of interest and builds on Blackrock’s existing obligation for employees to tell their manager if they are dating one of their colleagues. It has come under scrutiny from some who have questioned where the threshold for disclosure lies. For instance, at what point does a series of dates become a disclosure worthy personal relationship?
Conferences
Davy, Irish Financials Site Visit, 01 October (virtual)
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