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Keep your shareholders close

Written by Jack Gordon

May 20, 2020

For the first time in a while many Australians are facing the prospect of returning to their offices. As we confront the prospect of revisiting corporate dress, farewelling activewear, shaving and resuming our haircare habits, boards and executive teams must grapple with what the ongoing uncertainty means for their company and how best to protect or position themselves when lower share prices have made them vulnerable.

To parse some of these challenges, international law firm Baker McKenzie hosted ‘The cold light of day – strategies to position your business for the future’, a two-part webinar series moderated by Citadel-MAGNUS founding partner Helen McCombie.

With topics ranging from eligibility and impact of government stimulus and support packages, to emerging M&A trends and how companies are changing to avoid insolvency, one of the prominent themes to emerge was the active use of investor relations to protect and position for success.

Baker McKenzie restructuring partner David Walter was adamant about the number one priority: “Cash is king in uncertain times, and beyond that, developing relationships with a company’s source of cash is crucial.”

Shareholders, both institutional and retail are a major source of that cash, as are lenders. Good communication and building these relationships is an effective way to protect your company from opportunistic buyers and creditors, as well as position it to take advantage of uncertain market conditions, where market valuations can’t be extrapolated from traditional economic indicators.

Head of Baker McKenzie’s Australian Equity Capital Markets group, Antony Rumboll, said that while regulatory safety nets and cash provide security to Australian businesses, he is advising clients to increase their engagement with shareholders and advisors to best protect their business.

“Companies really need to think about their existing shareholder base and maintaining strong engagement with them,” Mr Rumboll said. “They are important not only as a source of capital, but more broadly as a supportive base and stakeholder. That plays through into investor relations and understanding who is on your register plus any significant movements, so you can engage with them.”

Mr Rumboll also highlighted the importance of continuous disclosure and strong internal communication, saying, “It is made all the more acute in the current environment to understand your own company and have good information flow, to grapple with the continuous disclosure piece”.

Partner Kate Jefferson, a member of the Asia Pacific Mergers & Acquisition Steering Committee, agreed companies needed to stay across their shareholder base.

“From a public M&A perspective, what we’re seeing is a number of potential acquirers taking stakes in ASX listed companies of two, three or four per cent. So one change in approach that we’re recommending to boards is to keep a really close eye on their share register, focusing on new entrants … because it may well lead to a wave of M&A transactions down the pipeline to capitalise on these difficulties as a result of the valuation proposition.”

Chinese powerhouse, Tencent, recently acquired a minority stake in listed ‘buy now, pay later’ leader, Afterpay, in a sign of the times. While we can only speculate on the motives of the acquirer and its strategic drivers, it may be a very high-profile example of what Ms Jefferson suggested.

Mr Rumboll also advised investor relations teams to look out for parties building derivative positions, an effective way for strategic buyers to build a stake without being readily detected. He described the outlook for the next three to six months as “…pretty murky, if not opaque.”

While that may be true, the Baker McKenzie partners provided webinar participants with some clear strategies for handling the next wave of COVID-19 disruption.

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