Cross-border investor relations: worth the investment? Companies weighing the value of approaching overseas investors could take a lesson from the approach of a German bioscience company. (International IR).

Reading a recent Wall Street Journal article makes it clear that former General Electric Co. CEO Jack Welch's personal fortune is now primarily invested in tax-free municipal bonds. While the article points out that Welch has allocated a small chunk of his assets for riskier technology stocks and private equity investments, it's interesting to speculate how this investment philosophy may have affected the way institutional investors are redirecting their efforts and how they are investing capital, since cash inflows have declined so significantly.

It also is cause to reflect on how investor relations officers should target institutions. How broad or narrowly focused should their geographic reach be?

Macroeconomic trends such as the U.S. dollar's weakness and the strength of the euro, the scandals that have undermined the credibility of U.S. corporations and the quality of earnings, as well as U.S. political policy, have all affected global markets. These trends also have, at least somewhat, affected overseas investment sentiment. Based on these trends, the question for U.S.-based companies is whether Europe has developed as a good source of new capital. And, for European companies, the question remains: is the U.S. still the place to locate new ownership?

In a recent discussion with a group of investor relations officers and service providers, a consensus emerged: While the inflows of global institutional funds have fallen significantly, companies should include targeted marketing to investors beyond their local market, depending on a few key criteria. These criteria will help to determine whether the effort is worth the investment.

First, for example, if a U.S. company does business in Europe, that is one obvious reason to consider marketing there. Second, if the U.S. company has a strong, recognizable brand, that may also support the effort. If both these criteria are met, the option of a dual listing on another exchange may support a company's marketing effort to broaden its shareholder base, increasing its trading volume and moderating volatility.

The reverse is true for European companies. For example, European companies that list on either of the big American exchanges can offer U.S. investors a user-friendly currency in their own market known as American Depository Receipts (ADRs). ADRs are U.S. share certificates that represent underlying foreign shares held in custody outside the U.S. They are traded and settled in the U.S. like any other share.

According to researchers at Ohio State University, non-U.S. firms cross-listing on U.S. markets tend to have significantly higher valuations than those that don't. Earlier theories about the benefits of a U.S. listing focused on the lower cost of capital realized by increasing the shareholder base.

It is also important for U.S. companies to do a careful targeting study to determine the appropriate institutional owners. This requires a company to line up its fundamentals against the potential institutional investor's charter, enabling the corporation to assess the potential return on investment of this type of marketing. The targeting should be conducted regularly to reassess the validity of whether Europe is a good source of capital.

Best Practices: Integrated Communications For a Dual-Listed Company 

One company that has undertaken an investor effort on two continents is LION Bioscience AG, a German-based life science informatics company. LION is one of two companies in Germany listed on both the Neuer Markt (which is part of the Deutsche Borse, the German stock exchange) and Nasdaq. As part of the Nasdaq listing, LION complies with U.S. GAAP regulations and submits its regulatory filings to the U.S. Securities and Exchange Commission (SEC).

The rationale for LION's dual listing included several elements: a large percentage of the company's revenue is derived from U.S. customers; it wanted to raise its profile among U.S. investors and its customers; the dual listing provides a flexible tool for raising capital; and its U.S. stock can be used as acquisition currency. LION's Nasdaq listing provides U.S. investors access to the company's security through an ADR.

In order to support the underlying shares on the German exchange as well as the ADRs on Nasdaq, LION has assembled a global communications team, with the goal of a cohesive communications strategy across its audiences--investors, analysts, press, employees and customers in Europe and the U.S. When LION decided to list on Nasdaq, it made a firm commitment to deliver consistent, quality information to U.S. investors. LION's press releases and other investor information are written in both German and English to support its global investor base.

This team consists of internal public relations and investor relations professionals located in Germany and in the U.S. It meets weekly via conference call to discuss the company's integrated communications approach, as well as tactical implementation. The CEO and CFO regularly participate, with ad hoc participation from other management, including the company's legal counsel.

"Our goal with the communication team is not to push one culture over another-but to build our own," says Freiderich von Bohlen, LION's CEO. "Further," he says, "the Transatlantic challenge for LION is not be global, but to be better--more transparent to investors by abiding by the highest standards of disclosure."

One of the most challenging aspects of communicating the company's financial message relates to the need to gather input from the communications representatives from each continent relative to institutional investors' and analysts' expectations, as well as interpretation of the company's messages.

This is also true from a media perspective. While there is usually a consensus on the issues, there are cultural and market differences.

For example, LION recently announced it would take an impairment of goodwill and intangible assets resulting from two acquisitions. Under U.S GAAP, LION was required to perform a review as a result of its market capitalization being lower than its book value. While many U.S. companies have experienced goodwill write-offs, it has not been as prevalent in Germany since many German companies do not follow U.S. GAAP. As a result, the message to the European market needed to be managed very carefully.

One of the other positive aspects about the team is that it learned to keep track of marketing and other corporate events that can be leveraged and communicated to the financial audience.

Furthermore, LION's investor Web site is frequently updated with the most up-to-date information for investors to support the marketing effort. The public relations team also has proactively placed company news in trade publications, as well as with wire services and financial publications.

Nasdaq and Neuer Markt have different disclosure requirements. For example, while Regulation FD is enforced in the U.S., it has not been required for international companies listed on its exchanges.

Recently, the Deutsche Borse announced new standards for more transparent disclosure, which more closely aligns with the disclosure requirements of the U.S. exchanges. LION is actively taking a lead in implementing the new transparency standards in Germany, which are yet to be mandated. LION also now complies with the Sarbanes-Oxley Act as part of its Nasdaq listing.

Proactively Marketing LION's ADRs

The targeting effort is supported by participation at conferences focused on healthcare, in particular biotechnology and pharmaceutical companies. In addition, LION recently held its first "U.S. Investor Day," which was developed to give interested portfolio managers and analysts the opportunity to meet the management team and learn more about the company's strategy, goals, milestones and business.

Seeking institutional ownership for LION's ADRs has focused on targeting institutions seeking to invest in companies outside the U.S. and diversify their portfolios globally. In addition, this targeting effort includes international funds managed in the U.S. and funds focused in healthcare, healthcare information technology or general technology.

LION has also participated in local stockbroker's club meetings to broaden its shareholder base. For this audience, the presentation is adjusted to reflect a retail audience.

LION elects to webcast its participation at the meetings in order to maximize its reach, as well as to identify potential interest in the company's stock. This is monitored through a list generated by the webcast provider as interested parties log on for the presentation.

LION's research coverage is supported by a number of international investment banks in Europe. While research from these firms is filed over Thomson Financial/First Call, it can be difficult to get U.S. institutions to pay attention to it. Large U.S. brokerage firms are reluctant to initiate coverage if their European counterpart is already providing coverage.

The IR team has been working on securing research coverage for LION in the U.S. by developing relationships with regional investment banks and independent investment research firms. The challenge in securing research coverage from regional banks is related, as it is with giant brokerage firms, to firms tying coverage to investment banking business and the downsizing that is taking place on Wall Street.

RELATED ARTICLE: LION's Global Strategy

1. Focus on international funds, funds in healthcare and technology

2. Meet with U.S. investors--"Investors Day"

3. Participate in local brokers' meetings

4. Webcast meetings to widen participation; collect names

5. Develop relationships with boutique, regional investment firms

Donna LaVoie is President of LaVoie Strategic Communications Group Inc., Boston (www.lavoiegroup.com), which provides senior-level strategic communications counsel. She can be reached at [e-mail] or 617-973-5101.