Talking to the award-winning IR team at a transatlantic giant
BP's modern structure was brokered by Winston Churchill to ensure a supply of bunker fuel for the Royal Navy. Since then it has often boldly sailed where few have gone before. It was one of the first big privatizations initiated by the Thatcher government in the 1980s and, bar a bit of a blip in the early 1990s, has hardly looked back since.
Last year it took a further voyage into the unknown when it embarked on the largest industrial merger in history with Amoco, building a $150 bn giant whose shareholder base straddles the Atlantic. BP already had significant American ADR holdings, while Amoco was mostly US held. As a result, the new company, BP Amoco, has 40 percent of its shares in ADR form in the US. Most of the remaining 60 percent are ordinary shares quoted on the London Stock Exchange.
But just as the dreadnoughts needed a screen of frigates, the new giant needs a decent-sized IR team to keep itself on course and away from perils. The combined organization's IR effort has been rebuilt, led from London by David Peattie. BP already had Terry LaMore dealing with its 15 percent US holding, but with the arrival of many former Amoco shareholders it made good sense to bring Amoco's IRO, Charles 'Chuck' Koepke, on board. Amoco holders seem to have been stickers; about 35 percent were retail, and most of them are holding on to the BP ADRs they got in return for their old Amoco stock. Formerly based in Chicago, Koepke is now moving to New York as VP for IR North America to work alongside LaMore, director of IR in the US.
All in all, the transition has been relatively smooth. Peattie points out: 'Of all the teams in BP Amoco, investor relations was one of those that worked together first, because we had to prepare the show and get everything together for the August announcement. I think we've got to know each other pretty well over the last eight or nine months.'
Peattie took over the investor relations position two years ago after being executive assistant to chief executive John Browne, which itself bears witness to how much importance BP attaches to the position. (BP virtually swept the board at this magazine's UK Investor Relations Awards two years ago and went on to pick up best investor relations officer and a host of nominations last year). Koepke and LaMore both bring eight years of IR experience to the team. Peattie has a team of five in London, including himself, two IR professionals and two support staff. Moving to New York means that Koepke and LaMore can amalgamate their resources and knowledge of the combined shareholder base.
Standard practice
When BP bought Standard Oil of Ohio a decade ago, it produced an American/British English phrasebook to spare executives embarrassment – or even disaster – when they used words that were innocent on one side of the Atlantic, but highly inappropriate on the other. Koepke confesses: 'We're going through that again right now, although I think analysts or institutions that have held BP for a long time have become used to our terminology over time, and understand that ours is a little bit different to the way that some of our US counterparts would report.'
Almost as difficult in IR terms is reconciling the accounting life-styles of the oil giants. Pre-emptive IR dictated a massive broadside of revisionist accounting, and the result was a twelve-quarter historical restatement of the combined accounts. LaMore comments, 'We're learning some new questions, particularly from the analysts who previously only followed Amoco and not BP. There is some new terminology, but in the end the accounts are pretty similar – we have UK Gaap and US Gaap, but once you get past the terminology, I think you'll see that we're not that different.'
Peattie confirms this. 'Both companies reported in the same three major segments, exploration and production, refining and marketing, and chemicals, and we had similar ways of expressing value and earnings.' It also helped that BP, in an industry with dollar-denominated oil-prices, had moved to dollar-based accounting, prepared quarterly returns and paid quarterly dividends for the last decade.
It was not so easy to persuade the accountants, already tied up in producing BP Amoco's first combined annual report, that there was an urgent need to do a three-year retrospective. To begin with, Peattie reports, 'the accountants threw up their hands in horror, but we told them, We actually need this, and if anything the analysts would like it much sooner.' He adds, 'In fact, it was good for us as well because it means that we could get an early feel for some of the questions we were going to face. It raised quite a few issues in a period where the analyst community is just beginning to rebuild spreadsheets for the combined BP Amoco.'
It was a logistical as well as a mathematical challenge, since the 36-page restatement had to go to hundreds of analysts by their preferred method, the fax. For those of a more technological bent in the analyst community, it also went as e-mail and appeared on the web site. Indeed, breaking techno stereotypes of fuddy-duddy Brits and go-ahead Americans, BP was noticeably ahead of Amoco in the use of its web site, although that could be put down to corporate rather than national cultures.
Which side of the fence?
With its evenly balanced holdings, one question that some investors may want to ask is whether the new company is British or American. Peattie points out that BP Amoco is the US's largest producer of liquid hydrocarbons, and 30 percent of its worldwide staff are American. Investment houses and pension funds, on the other hand, tend to be less cosmopolitan. Some American funds do not want to invest abroad while British funds are often under-represented in dollar-based assets.
The merger also raises questions about indexing. On its own, the new company is 8 percent of the FTSE 100 in market cap, yet in the US the S&P followed its DaimlerChrysler precedent and struck it from the 500. 'We made ourselves available to talk to them about it, but we weren't very aggressive,' notes Peattie.
LaMore attributes about half of the 9 percent rollback of BP Amoco US holders to unloading indexers, but is phlegmatic about it since it still means that the merger kept a very high proportion of Amoco holders. So far, apart from the indexers, the company's size and presence has allowed it to be whatever the institutions want it to be – it is too big and the Atlantic too deep for it to fall between two stools.
To communicate with its global constituency, BPA's main vehicle is the quarterly results announcement, with some 200 sell and buy-side analysts. For the year-end and half-year results, they are addressed by John Browne and his management team. For the off-quarters CFO John Buchanan takes the helm, backed up by the investor relations trinity.
The BP approach had been a presentation in London, followed by an overnight flight to New York to do the same show the next day. Peattie says, 'Of course, we always got quite a bit of stick from the US audience about that. So in February we did our first live satellite link-up from London to New York.' It worked well, but they took no chances. 'There were four levels of back-up: we had back-up satellites, we had back-up ISDN lines, we had back-up phone lines and finally we had human back-up, which was none other than our deputy CEO, Rodney Chase, in New York. So we could have actually held two separate events and had two sets of analysts if there was a catastrophic failure in the satellite link.'
'We've probably broken through to a new level for the future,' Peattie adds. 'Most importantly, it allows the US audience to hear the message at the same time as the UK, so we have the global analyst community all listening in to the same set of questions.' For future link-ups, the physical 'center' will alternate between London and New York.
While modestly claiming that much of what the company does is standard IR practice, Peattie adds that there are 'a couple of other things we do which I don't think all companies do'. These include the annual analysts' visits which take both the sell and buy-side people to major operations sites, ranging from Alaska to Baku, Azerbaijan.
The IR team has the advantage of a relatively flat management structure. Apart from e-mail and constant communication within the team, they are physically close to the media people in London and New York, and have direct lines to the CEO and CFO. Peattie adds, 'It's also a corporate culture with one eye on the market and the role of the investor. I'm not trying to sound self-serving, but when other departments get a call from investor relations, they always go out of their way to help us, and see the importance of keeping us informed.'
A couple of weeks before the quarterly results are issued, the investor relations team assembles at London headquarters for a week to immerse themselves in the business meetings and details to prepare themselves for the conference. 'We're very well plugged in – and of course, it works the other way – we are the eyes and ears of the company on the market and on the investors.' Indeed, Peattie says, 'We monitor them very, very closely.' Fortunately, the company is on the must-hold list for most portfolios, so, without getting complacent BP Amoco's investor relations team have fewer problems to watch for than smaller companies with a narrower investor base.
Private concerns
While the major effort of the IR department is institutional, it does not neglect the needs of individual shareholders who are, even in the age of internet trading, overwhelmingly 'perfect' shareholders. 'They rarely sell their stock, they buy your products and they stick with you,' notes Peattie. Amoco had a higher proportion of individual holders than BP, reflecting US norms. But even BP has had a Drip plan in the US for its ADRs for the last 15 years. BP Amoco now has some 400,000 individual holders and it has combined the BP plan with Amoco's old one – which was itself highly regarded – to produce what it claims is 'one of the best plans out there'.
It was only a few weeks into the merger that executives from Amoco began quitting, and this provided the fledgling IR team with the first major challenge of the new set-up. They successfully presented the developments as speedier realization of the stated goal of a trimmed down senior management team. Analysts had already praised BP's management as one of the major assets of the merger, so they did not demur.
Of course, the IR team can do little about low oil prices, but at least these affect the whole sector. In the meantime, BP Amoco's IR team cruises on, setting new standards in its bigger reservoir of shareholders.