IR Monitor – 21 June 2023

This week’s news

UK IR Society’s annual conference – key takeaways from Maxime Lopes

FTI attended last week the UK IR society’s annual conference in London. The event, packed with panel conversations and networking breaks, also featured keynote speeches from TalkTalk’s and Informa’s CEOs, which insisted on the importance of a robust IR infrastructure and on the many benefits of IR readiness. From the impact of volatile macroeconomics on investor communications to future ESG trends, through to the generative AI revolution, the conference once again focused on hot topics and identified current challenges and opportunities for the IR profession. At a time when an ever-growing corporate literature can make it difficult to distinguish what really matters from an investment standpoint, buy side stakeholders also reminded the IR audience that it was more important than ever to focus on material items and keep the investment story as simple as possible. Lastly, groups could not avoid discussing the competitive positioning of London’s equity market versus other international venues. The place of listing was described as only one of the factors driving valuation discounts on this side of the pond, alongside a challenging macro-environment in the UK, a pension funds exodus and the very specific mix of businesses listed in London.

Activist investors see success rate jump after new SEC rule 

Activist investor success rates are up this season, in part down to a new SEC rule. According to proxy data, 66% of activist seats proposed in 2023 were won, a significant uptick when compared to the 2022 rate of 47%. Much of this increase can be traced back to the SEC’s Universal Proxy Card (UPC), which took effect last September. The latter means that investors now use one proxy card to vote on director seats and other shareholder proposals, in contrast to the now antiquated two-card system. Executives initially expressed concerns around the changes, which they said would make it easier for activist investors to penetrate corporate boards. Some experts see the introduction of the UPC as leading to an increase in settlement agreements with activist investors, as well as an increase in company bylaw changes to block activist nominees. At the same time, the use of UPCs means companies benefit from added protections against what proxy advisers refer to as “unintended consequences”. The quality and reputation of nominees is critical under the one-ballot system, with the UPC making the selection process far more targeted. With the evaluation process now focusing on individual directors rather than the slate as a whole, activists must present a strong line-up of candidates to gain control of boards.

Collapse of London’s biggest flotation this year is not exactly a City snub

The City is increasingly seen as a laggard on the global stage, as top companies turn their back on London in favour for New York. WE Soda’s recent decision to pursue an IPO on the London Stock Exchange was heralded as a sign the tide may be turning, but the situation quickly turned sour. Just a week after what would have been the biggest UK flotation of the year was confirmed, Chief Executive Alasdair Warren made a surprising volte-face. Citing “extreme investor caution”, he announced WE Soda was unable to arrive at an acceptable valuation. For Sky news, Ian King suspects that investor caution is not solely to blame, and the valuation itself might have played a part in this U-turn. King notes WE Soda is a well-performing business, enjoying a healthy market share and significant growth prospects, as well as displaying strong sustainability credentials. These factors ultimately led the company to seek quite a punchy valuation – specifically an enterprise value of more than 7 times forward EBITDA, far above its closest and well-established peer. The market, stung in recent years by overvalued flotations, deemed this valuation too rich, in part due to the potential decline in soda ash prices and increased global supply. Rather than a city snub then, King suggests the failed LSE debut is indicative of the challenges of pricing IPOs appropriately today, given past disappointments.

Things looking up for flotations in NY

Last week, fast casual restaurant chain Cava Group Inc. almost doubled in its trading debut, delivering one of the biggest first-day gains in two years after it had already surpassed its IPO target – raising $318 million. Cava’s shares closed 99% higher than the IPO price on Thursday, giving the company a market value of almost $4.9 billion. The Mediterranean eatery’s IPO offer was the sixth largest of 2023, offering one of the few bright spots in an otherwise bleak year for listings on US exchanges. By one measure, the company’s first-day pop marked the best debut since July 2022 for a firm listing on a US exchange that raised more than $100 million, according to Bloomberg. The Group’s strong debut indicates that the IPO window may be slowly opening after being virtually shut for more than a year. Given the IPO priced above a range that was already boosted, industry watchers believe Cava’s performance is a signal that other companies, such as Fogo de Chao Inc., Fat Brands Inc., and Panera Bread Co. may go through with their own listing plans.

New study on the transformation of the global IR industry

As global leaders in IR executive research, Broome Yasar are collaborating with IR Magazine (and FTI) to publish the investor relations industry’s first ever global ‘State of the Nation’ report. This latest study will focus on today’s ambitious and successful IROs who are more influential, powerful and rounded strategic communications professionals than ever before. The report will include thought pieces and case studies as well as benchmarking data and analysis, driven by the real testimony of experienced IR practitioners, industry watchers, wider business leaders and IR associations across the globe. FTI and its senior IROs will be adding to the views and ideas of the project, offering opinions on the growth and development of investor relations work in recent years and helping to determine where it’s likely to head in the coming decades.

And finally … inside the crazy world of woke investing – The Daily Telegraph

Elon Musk has hit out at investment data firm S&P after it gave Tesla a lower ESG score than cigarettes manufacturer Philip Morris International. On Twitter last Tuesday, Musk wrote ‘Why ESG is the devil…’ and shared an article slamming the current rating practice of ESG scores, used by pension funds worldwide to decide if companies are ethically compliant. Tobacco company Altria, for example, has burnished its ESG credentials after going to great lengths to improve the diversity of its board and winning plaudits for LGBTQ equality. Mindful of the pitfalls, many large investors in Europe are wary of criticising the current manifestation of the ESG agenda. But while the Telegraph argues  few asset managers would debate the need for ethical and sustainable investment criteria, many feel that it has simply become a ‘tick-box’ exercise. The debate follows recent backlash in America, where Joe Biden recently used his first presidential veto since coming to office to block a Republican bill designed to prevent pension funds from basing investment decisions on ESG considerations. While asset management giants are growing under pressure from certain states to ignore the ESG agenda, public dissent among money managers back in Europe is yet to fully come out into the open…

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