How Suncor Energy diversified its shareholder base by hitting the road
Around ten years ago Suncor Energy had a global commodity and a local shareholder base. The Calgary-based company extracts oil from Canada's oil shale and sands as well as searching for and refining natural gas. A decade ago the stock was almost 100 percent Canadian-owned. That's when Suncor's senior management and its head of investor relations decided to broaden the company's shareholder base by launching a global investor relations effort targeting investors across the US and Europe.
Today Suncor's shareholder base is geographically dispersed. Around 40 percent of the stock is Canadian-owned, 45 percent is US-held and the remaining 15 percent is in the hands of European investors. The story of how this energy company expanded its ownership offers a case study in shareholder diversification.
Back in 1994 Suncor was doing well but not getting the valuation the company's IR department thought it deserved from the Toronto Stock Exchange. 'It wasn't that we wanted to raise capital,' qualifies John Rogers, vice president of IR at Suncor.
'We knew we had a significant amount of growth coming from the business and that to get a valuation to reflect that, we needed to expand the base of potential shareholders.'
Low valuation also made Suncor ripe for a buy-out but Rogers says the company's diversification strategy was not intended as a way to avoid a takeover. 'Any public company that has a valuation lower than the industry can have that worry,' he acknowledges. 'But your job is to make sure that you have an appropriate valuation for your company, and our program was definitely not motivated by defensive reasons.' Nor was Suncor disillusioned with the Canadian investment community. Attracting foreign capital was simply viewed as the best way to ensure appropriate valuation for the stock.
The first obvious place to go knocking was the US. '[That country] contains a lot of potential shareholders but they had wider horizons and were also looking at Europe and Asia as sources,' comments Rogers. Suncor's advisors suggested a new issue would be the best way to get US investors' attention. 'They basically said, If you're not about to raise capital, then don't even think that you can gain extra shareholders beyond your border. They might still say that - but not to us.'
However, Suncor's IR team was a stubborn lot, determined to entice US money managers. 'We decided that, given the chance to sit in front of portfolio managers in various cities, we would go for it anyway,' says Rogers. In December 1993 the company listed on the American Stock Exchange, switching to the New York Stock Exchange four years later. Moving to the Big Board 'gave us a fair amount of visibility and gave some of the American portfolio managers a degree of comfort because we would be following NYSE rules,' he adds.
Fly-fishing, not trawling
Once Suncor listed on the NYSE, Rogers started to accumulate air miles at a rapid rate. He spent 50 percent of his time on the road, meeting with shareholders in cities like Boston, New York, Chicago and San Francisco not to mention Dallas, San Antonio, Los Angeles and Des Moines.
In these meetings Rogers told a 'very clear story' about what the company was going to do. He would then return six months or a year later and report on what the company had actually done. As Rogers notes, it is a very long laborious process to get investors into the comfort zone where, he says, 'they know they can rely on what you are saying.'
Rogers' itinerary was not random, of course - he was fly-fishing, not trawling. His targeting strategy began with taking a hard look at where Suncor's potential shareholders might be. To help with that process, he used Thomson Financial's targeting tools to determine which cities were home to the most promising targets. Picking target cities, he says, 'is a big piece of the process that ensures you're not wasting your time.'
Once you reach your destination it's not enough to put up your stock ticker and wait for investors to flock to you. 'You have to differentiate your company; show how and why it's different from other investments available to investors,' Rogers says. 'Don't go into US portfolio managers and say, We are exactly the same as this or that company, because then they don't have a compelling reason to buy your stock. You have to show that you have something else to offer.'
Selling the story
Suncor certainly had an interesting story to tell. 'We have a very unique business model, different from any other oil-producer in the world,' says Rogers. 'We are more of a manufacturing company than a conventional oil or gas producer, so we were able to differentiate ourselves from all other energy producers.'
But different is not necessarily better - and in order to hook investors, you need a strong track record. 'You have to show that you are deploying your capital correctly and getting a good return,' Rogers comments. In short, 'you have to turn that uniqueness into superior returns.'
Bearing in mind the umpteen wars (past and present) in the world's major oil-producing regions, Canada's position as almost the only big energy exporter not straddling a major geopolitical fault line is an asset in itself. 'There has been a realization [among investors] that they need to look for a more secure energy supply and Canadian energy is certainly one to consider,' says Rogers. 'Suncor's big advantage is its economies of scale; as a very large producer, we are able to drive down costs.'
Of course the best way to attract foreign investors is to show them great results. In 1992 Suncor pledged to increase shareholder value by doubling the stock price every five years - and in ten years the stock price has increased by a whopping 1,200 percent. As Rogers notes, 'We have more than fulfilled our pledge.'
Local customs
The next step in the company's diversification plan was to target European and Asian investors, which added extra challenges. 'It takes an awful lot of hard work and attention to detail,' says Rick George, CEO of Suncor. 'But over time you gain - and hold - longer-term investors and it helps to expand your thinking in a way that a strictly North American investor profile wouldn't.'
While Rogers does most of the traveling, about half the time George or Suncor CFO Ken Alley accompanies him. As Rogers points out, 'To begin with, investors across the world want to see the CEO, but then they begin to know that you are a credible spokesman for the company and they relax.'
Suncor didn't bother listing in Europe because it found most investors were happy to work through either New York or Toronto. The IR team did, however, visit a slew of European cities including Milan, Zurich, Frankfurt, London, Dublin, Copenhagen and Paris.
Rogers has earned his stripes as a road warrior after experiencing the many quirks and challenges different destinations can present. Technology doesn't work exactly the same way in different countries, he points out. And as an investor relations person, you have to maintain your sense of humor when you can't access your PowerPoint presentation or when your cell phone doesn't work.
'Even things you take for granted like electrical currents aren't necessarily the same as in Europe and America,' Rogers comments. 'But you get to know the characteristics [of different places]. In Madrid, for example, don't plan afternoon meetings during the siesta, and if you make a dinner appointment, make it for about eleven o'clock in the evening.'
The only way to tap into local customs is to experience them first-hand - and not all of them are engaging. 'We hosted a magnificent lunch for several years in Paris and then we stopped doing it,' explains Rogers. 'We always had a good turnout but a lousy turnover.' According to Rogers, French portfolio managers and analysts were more than happy to show up for a free lunch but they weren't buying the stock.
With all his travels, Rogers can now walk into airport lounges around the world and see familiar faces. He has witnessed the global village phenomenon first-hand. 'It's amazing how small the community is becoming,' he says. 'For example, I can walk into Pioneer [Investment Management] in Boston, Dublin or Singapore and bump into the same people.'
Reducing risk
Since Suncor first began heading out on the road to sell its story to foreign investors, the company has seen a major increase in the number of overseas and US investors holding the stock. A key part of Suncor's strategy is consistency. Rogers and his senior management have been out relaying the same message, backed by strong results, for many years now. Analysts and portfolio managers react well to a cohesive story that withstands the test of time.
Brian Dutton, an analyst with UBS, applauds Suncor's 'consistent approach to marketing.' He appreciates the way that the company ensures investors outside North America get access to senior management. 'And Suncor doesn't just tell existing and potential shareholders the good news; it keeps them abreast of any bad news as well,' he notes.
With North America and Europe under control, Asia looms. Suncor has already visited Melbourne, Sydney, Singapore and Hong Kong. 'We need time to assess a little more and determine whether or not we can afford the long-term consistent effort it will take [to attract Asian investors],' notes Rogers. 'We're a little cautious and we have to determine whether or not there is an appetite [in Asia] for Canadian equities, particularly Canadian energy equities.'
If Asia doesn't prove to be a strong target for Suncor, Rogers isn't worried. 'What I am trying to do is introduce the company to as many investors as I can, and then the mix will determine itself,' he explains. 'We are trying to expand the potential population of shareholders.'
The big advantage resulting from diversification is that it has reduced the beta on the stock, says Rogers. With more people in the investment universe, there is more demand for the stock and therefore less risk - because even if a Canadian institution dumps the stock for some reason, there are other investors in the US or Europe ready to pick it up.
Globalizing IR
Looking back, Rogers is keen to reassure investment relations officers who are attempting to diversify their company's shareholder base that they are not obliged to do an offering. 'You don't have to raise capital,' he stresses.
However, he does warn that globalizing investor relations is not a temporary fad or foible. 'Once you've started this journey, you can never turn back,' he says. 'People expect to see you every year. It's not a one-year or two-year wonder. This is a five- or ten-year plan that we put in place. Going to Frankfurt once or twice won't get you anywhere. It's a continuous program of going to visit people to update them and tell them where you are.'
Rogers strongly rebuts the suggestion that being on the road all the time might make him less accessible to existing shareholders. 'Not at all - but that's because you have to be prepared to work all day, and return all your phone calls as well,' he says. 'It makes for very long days. If someone from San Antonio calls you up, you have to be prepared to phone back from Singapore immediately. But when you do talk to people, they are usually amazed at your responsiveness. We try to get back within two hours of a call.'
In fact, during the course of this interview, Rogers called IR magazine back several times from various airports.
He even promptly replied to a query while on vacation - at home in Calgary, Alberta. After all, IR road warriors need to rest up after a year in the stratosphere.