MCI's vice president of IR whisks through a year of merger action
April 1997: At 2.00 am in MCI headquarters - 7.00 am in London and 8.00 am in Madrid - we synchronized watches for a simultaneous release, alerting wire services around the world. MCI and BT had orchestrated their first global coup: forging an alliance with the largest communications company in the Spanish speaking world, Telefonica de Espana, winning it away from another global alliance.
We had choreographed the logistics for weeks. IR managers had been dispatched to Madrid, with audio and videoconferencing links in two languages across multiple time zones. Analyst briefing materials, press releases and conference call scripts had been written and rewritten untold times. Satellite up-links, regulatory notices and blast faxes to analysts and investors around the world had gone off on schedule. Investors were already in the process of being briefed.
Round the clock
he MCI/BT merger, on track to close in the fall, was already building groundbreaking alliances. The superlative scale of this endeavor put IR into overdrive. A 'normal' working day stretched from ten to 14-plus hours as we developed and began implementing a number of major new initiatives all at the same time.
In pursuit of best practice, we exchanged IR managers with BT. The new company would be a UK-registered company traded on the New York, London and Tokyo exchanges, so we planned for around-the-clock investor support, leveraging the internet as our primary IR tool to ensure instant access to information from anywhere. We expanded the MCI IR web site to include navigation in five languages and financial calculations in multiple currencies. In addition to the UK IR office, we were investigating an IR post in Asia. We would also maintain a strong IR presence in the US to preserve the quality of service to sell-side analysts and institutional investors.
Education was paramount. The IR mandate was to ensure that investors on both sides of the Atlantic understood BT and MCI. BT was little known in the US. Its securities were viewed as low-growth, high-yield compared to MCI's high-growth, low-yield stock. BT has a substantial individual investor base while MCI has a much smaller one. Post-merger, the mix would be an unprecedented global, high-growth, high-yield security, marketable to both individual and institutional investors. We hosted two investor forums in the US - an IR tool not commonly used in the UK. Both companies presented in-depth strategic overviews and broadcast over the internet to a global audience. These comprehensive presentations were a first for BT and roundly applauded by UK investors and analysts.
Information was key. Evaluating the respective shareholder bases and monitoring activity was the first step in post-merger planning. As a UK company, our securities would trade as ADRs on the NYSE. That meant de-listing MCI from Nasdaq, as well as moving to a transfer agent which handled foreign securities in the US. Flow-back was one of the biggest issues we would face as a UK company because many US investors have limits, or even prohibitions, on owning ADRs. In addition, more than 20 percent of our base was now held by arbitrageurs.
The challenge was to strengthen our base of investors in the US, where capital availability is so great. The initial step was to have our stock surveillance agent evaluate multiple scenarios of potential stock movement post-merger. We discovered, however, that the analytical and quantitative tools we take for granted in the US are not available in the UK. We immediately began to investigate best practices for surveillance of a global shareholder base. This would be pivotal in our campaign to maintain a substantial US base and thereby increase demand for shares in the new company.
Marketing was essential. We took MCI and BT executives on an extensive roadshow, hosting group meetings and making one-on-one presentations across the US and Europe. Meeting the new management team helped drive investor confidence and provided unfiltered communication opportunities.
US individual investors also presented an untapped market opportunity that investor relations geared up to address. We launched a new retail investor program and began an aggressive marketing campaign that included mass mailings, retail investor conference presentations, customizing the IR web site to serve individuals and developing new publications. In addition, we had a new direct purchase and dividend reinvestment program nearing completion.
At the same time, going global did not slow MCI's day-to-day IR operations, supporting executives with strategic briefings, customer presentations and Wall Street meetings. None of this was routine, given the merger-related activities and, importantly, the changing dynamics in the telecoms market. IR had to ensure that investors and analysts understood these changes, how MCI was positioning the company to respond and the impact on our business.
In July, MCI announced it would likely incur higher than expected losses in entering the US local market. MCI stock closed down nearly 7 percent on a volume of 34 mn shares. BT investors successfully pressed for a strategic review of the merger. In late August, new terms were agreed: $19 bn in cash and stock, a 20 percent price cut on the original terms. MCI closed down nearly 6 percent on a record volume of 64 mn shares.
July to August 1997 was one of the most challenging periods of my IR career. The strategic review period was especially volatile. With billions of dollars at stake, investors were increasingly anxious for news of the outcome - news IR simply could not provide. The dearth of information was extremely frustrating for everyone. The IR challenge was to remain detached and strictly adhere to publicly available information. To veer beyond that, even slightly, would have exacerbated an already difficult situation.
Once the new merger terms were announced, IR had a two-day window before the quiet period would commence. We worked around the clock, splitting into teams with MCI executives, and proactively called investors and analysts. A new roadshow was on the drawing board and we were gearing up to restart the excitement and rebuild strained relationships on all fronts.
WorldCom rocked the market on October 1, announcing an all-stock $29 bn bid for MCI, topping BT's price by $10 bn. MCI stock closed up 20 percent on trading volume of 63 mn shares. On October 15, GTE changed the dynamics again with a $28 bn all-cash offer, putting MCI right back in the headlines and driving speculation to a fever pitch.
MCI was now firmly in-play, and while the environment was certainly upbeat, we still had to judiciously steer clear of speculation and maintain neutrality. All we could provide to investors or analysts was information already in the public arena. As internal deliberations moved, sometimes in all directions, IR was the conduit for communicating real-time investor sentiment to management.
On November 10, MCI and WorldCom announced an agreement to merge, valued at $37 bn. This ended the uncertainty and launched a new era of investor excitement - and a new investor relations challenge.
The education, information and marketing process was geared up again with MCI WorldCom roadshows, investor conferences, customer presentations, one-on-one discussions, conference calls, internet links and publications continuing unabated.
Today's educational challenge is to raise a surprisingly low threshold of insight into the data and internet services market - a key growth area for MCI WorldCom. IR has taken the lead here with executive presentations to Wall Street to define that market opportunity, our strategy and our capabilities. The marketing potential of the new company is particularly significant.
MCI and WorldCom have a common shareholder base approximating 40 percent and strategic IR initiatives are under way to offset selling activity as arbitrageurs and those overweighted in either company sell post-merger. However, the range of potential new investors is substantial. Investors in technology stocks and individual investors are both potential long-term investors for MCI WorldCom and marketing to those segments is well underway.
In March 1998, MCI and WorldCom announced a new agreement with Telefonica de Espana, which had earlier announced the end of its alliance with BT. This global business relationship - WorldCom's first - is a strong indicator of MCI WorldCom's global strategy. From Telefonica alliance to Telefonica agreement, MCI's shareholder value increased by $11 bn and its stock catapulted to over $50 per share.
The last twelve months have been tremendously challenging and educational for IR. Global mergers, midnight strategy sessions, major IR initiatives and billion dollar deals are the norm in this job. We now expect the unexpected and are ready for anything.