The general manager of IR and strategic planning at Cinergy Corp talks about dealing with a deal
Steven Schrader, general manager of investor relations and strategic planning at Cinergy Corp, one of the leading US diversified energy companies based in Cincinnati, Ohio, has only been in the job for four months. He recounts the week in early July when his company sold its 50 percent stake in Midlands Electricity plc, a UK regional electric company, to GPU, a New Jersey-based electric utility, for $700 mn.
Before the deal with GPU was announced, the external media relations director drafted two press releases, one outlining the transaction itself, the other focusing in greater depth on the financials. We wanted to give further explanation of why and how the deal would have a positive impact on our bottom line figures. [The company said that it expected a net gain of 43 cents a share to its third quarter earnings.]
It was also important in the general press release to convey the right messages. We had held Midland Electricity for around three years and enjoyed some profitable gains, so we had to make it clear to our investors and analysts why selling Midland made strategic sense. We had acquired a joint interest in the company with GPU in 1996, but the UK is a more mature market, and we wanted to reiterate that Cinergy is now looking at generation, transmission and distribution projects in faster growing markets.
After the drafts get reviewed, the external media relations director writes the final proof. From an investor relations standpoint, the busy time is really once the announcement is released. Unlike other companies, we do not typically hold teleconference calls, but prefer to talk to analysts and investors personally. This means that I got into the office early in the morning the day the press release went out and spent the whole day and much of the next day on the phone. In total, I responded to 20-25 calls from analysts and investors, spending 15-20 minutes talking with each of them.
One of the biggest challenges is that, although you know the story by heart, the questions of course differ, and you have to be ready for them. For example, in this deal, some people were more interested in the financials. They wanted to know exactly how the sale would impact the bottom line and how much money the company might lose in the future without this business. Others, on the other hand, focused more on the strategy behind the sale as well as our plans for the future. They also asked for more details about where the proceeds of the sale were going – we had already said they would go to investing in other fast-growing businesses as well as to form strategic alliances.
Although it is hard to answer every question – I will always call back if I can't – I spent a great deal of time beforehand preparing for the calls. I not only analyzed the numbers in greater detail but also looked back at the history of the original purchase to check the comments we made at the time of the deal.
I don't think the sale of Midland came as a big surprise to either analysts or investors. We had said in the past, that we would always monetize assets when that made sense, at the right price. Everyone knew that Midland Electricity was going through a rate review and that rates would probably be lowered by quite a bit. If analysts were looking at our assets, then they would have realized that now was the time it would have made sense to sell our stake.
With this deal, and overall in investor relations, I think one of the biggest challenges of the job for me is to understand the thought processes of each investor and analyst. They all have their different perceptions about the company, but it is my job to figure out exactly how they view us and what is the best information I can provide.
Although I have been with the company for 13 years, I have only been in this job for four months. I am used to telling the story, plus I have a great deal of insight into strategic planning, which is very useful for my current job, but I did not previously have contact with external people on a daily basis. Prior to this position, I was working in the finance operations in the energy delivery unit and before that, I was involved in strategic planning. I also understand the techniques used in valuing companies because I worked in corporate development, which in our company means looking at mergers and acquisitions.'