IR Weekly – Monday 27th July
Welcome to FTI Consulting’s IR Weekly newsletter.
This week we consider the rise in exotic buyout vehicles in the US; the ‘worst in a generation’ dividend crash; research from FTI Consulting Germany on how DAX-30 companies communicate annual results on social media; the growing role of institutional investors in activism, how the EU is tweaking capital markets regulations to try to boost the post-pandemic recovery, and finally how Robinhood punters move the markets in unexpected ways.
For your information, the FCA has launched a consultation into delaying the implementation of the European Single Electronic Format (ESEF) requirements for annual financial reporting under the Transparency Directive (TD).
This week’s news
The Financial Times took a look at the rise of special purpose acquisition companies, or SPACs, in the US equities markets. The vehicles are in effect shell companies created for a specific acquisition, in which investors can buy shares. The method is meant to give more certainty to companies being acquired than a traditional IPO, as they agree a fixed purchase price, at the same time as allowing investors to buy into a vehicle which they hope will be acquiring a firm at a good price. The piece points out, however, that the success of a SPAC depends largely on the reputation of the dealmaker in charge of it, and critics say the method lacks transparency and rewards founders ahead of shareholders or companies.
Investors feel the pain as dividend payouts plummet
The Times reported that dividend payouts dropped by a steep 57.2% year on year as businesses continue to slash their returns to investors. According to research by Link Group, it could take until 2026 for dividends to return to their 2019 level. Three quarters of businesses that usually pay dividends reduced or dropped them in the second quarter, including behemoths such as Royal Dutch Shell, BP and Aviva. It estimated that a best case scenario for ordinary and special dividends this year will total £61.6 billion, down 44.3 per cent from last year. The report however, estimated a rise next year, with a forecast of £78 billion in ordinary dividends.
Social media and German capital markets
For the fourth time in a row, FTI Consulting Germany has examined how DAX-30 companies communicate their annual results on social media. Daimler is once again the winner of the Social DAX ranking, followed by Bayer and Volkswagen, which are newcomers within the Top 10. The analysis identifies three trends within the financial communication: The DAX-30 communicate even more “in motion” and increasingly use video formats for this purpose. LinkedIn has risen to the top of the examined social media channels, being used by 26 of the companies. The content of the annual reportings reflect the overall social trend of sustainability and ESG topics, which were much more in focus than in previous years. In light of the corona pandemic, this years’ Social DAX also covers the first experiences with virtual Annual General Meetings as well as the proper use of social media in crisis situations.
Institutional investors finding their activist voice
IR Magazine reported that investors including the likes of CalPERS, Blackrock and Vanguard are increasing activist pressure around governance. According to research from CGLytics, the number of activist campaigns focused on governance grew by 45 percent between 2017 and 2018, and 26 percent between 2018 and 2019. The areas garnering activist attention include shareholder rights and board issues including independence, tenure and diversity. The report does note however, that despite the number of campaigns growing overall, activists have been less successful this year, with only 9 percent of campaigns being successful or settled, compared with 17 percent in 2019.
Quick fixes: MiFID
The Financial Times reported that the EU is planning to reveal measures designed to reduce the economic impact of Covid-19. The anticipated measures include tweaks to Mifid, with companies valued at under €1bn becoming exempt from ‘unbundling’ to encourage analyst coverage and the trading of smaller companies. Other planned changes include an allowance of overseas benchmarks for foreign exchange derivatives and exemptions on costs and charges disclosures for asset managers and other wholesale clients. A formal review of Midif II will take place next year.
Finance blog ZeroHedge looked at how US retail trading platform Robinhood, which this week announced it was cancelling its entry into the UK market, links with more traditional financial players to move the markets in unexpected ways. They pointed out that Robinhood packages its retail orderflow to resell to high-frequency trading firms, which has a multiplicative effect as the algorithms accentuate small market moves generated by the original retail investors. Another side effect of this is, of course, that financiers and algorithmic funds skim yet more money from often hapless retail punters. Zerohedge alleges that Citadel Securities, the sister firm of hedge fund Citadel, is one such partner of Robinhood.
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