Big sell to small investor has devil in details

BY DITA DE BONI

How can an ad or marketer turn someone's legacy from Aunt Doris - languishing in a term investment with a pitiful annual interest rate - into a stock market success story?

From big-bikkie floats such as Telecom and Contact Energy to e-ventures such as BeautyDirect and EStar Online, campaigns behind share issues have aimed to relieve "mum and dad" investors of their cash and promised to turn slow-and-steady savers into giddy sharemarket punters.

So how exactly does marketing sell an Initial Public Offering (IPO) or float? Basically, with plenty of lawyers looking on. A slew of laws and codes must be adhered to, including Securities Commission and Stock Exchange rules, the Fair Trading and Companies Acts and broadcasting and advertising codes.

There are essentially four steps in the listing of a company involving marketers.

In the pre-prospectus stage, the law prohibits a campaign including more than basic details about the offer, such as name of issuer, offer terms and the intended use for the money that will be raised.

After that, registration is when the media blitz begins. Research and advice is proffered, 0800 lines burn and investment statements and a prospectus supplied to would-be investors.

When shares finally start trading on the stock exchange (the listing phase, about three weeks after registration), the post-market stage kicks in.

Most marketers consider this the most difficult period for newly listed companies. A steady stream of operational information must be imparted to small shareholders, institutional investors and the media.

The staff of formerly private companies are subjected to the full glare of the public eye - sometimes for the first time.

Overall, the aim is not only to sell the float, but to keep investors enthused and prices commensurate with enthusiasm.

Neil Green, managing director of Porter Novelli (Wellington) and the PR man behind the Auckland International Airport float in July 1998, says before the National Mutual float in 1996, most "mums and dads" thought of the sharemarket crash of 1987 - if not 1929 - when they considered entering the stock-buying game.

"Before National Mutual, New Zealand had a small group of active investors - around 40,000 - who regularly traded shares," he says.

"National Mutual brought on board around one million people - the majority of whom had never owned shares before. [People] also began to see the stock as savings and brought small parcels of shares, some of which are probably still sitting at the bottom of wardrobes."

Porter Novelli is involved in the float of internet CD-selling venture EStar Online, which listed last Friday, and is also preparing for the imminent listing of Frucor, which the company is prohibited from discussing as it is in the pre-prospectus stage.

"Auckland Airport set the benchmark. It was the first time the Government did 'popular capitalism,' or taking the offer to the general public," says Mr Green.

"We realised the way forward was to make [potential investors] like us with direct communication. They were not comfortable with brokers."

The airport float publicity also had to navigate some fairly rocky political terrain, with Labour and the Alliance opposed to a sale of state assets and the coalition Government of New Zealand First and National at loggerheads.

"We had to remove the float from the political arena and make it stand out, because there were several other floats going at the same time.

"From the communications-to-the-public perspective, we found you have to create emotional attachments. So we used Sean Fitzpatrick, who had a great profile and was closely identified with New Zealand and was a non-political figure."

The overwhelming response to the float confirmed that the marketing blitz - including seven-minute "programmettes" on TV and investor statements distributed throughout NZ Post shops - had struck a chord.

Brokers thought the float would get about 15,000 responses from "mums and dads."

A total of 86,000 calls were received, 30,000 investor statements taken from NZ Post shops in the first day and 90,000 statements finally issued in three print runs that caused a logistical nightmare.

"Taking it to the people was a vital part of the marketing - bypassing brokers because it made it more accessible," says Mr Green. "Also, people were not just buying for the returns but for what the company represented.

"The purchase of stocks is about the emotional as much as the rational."

Despite a huge oversubscription to the offer, not everyone had good things to say about the marketing of the airport. One source who declined to be named says the advertising campaign was somewhat unethical, because "the people's float" disguised the fact that most shares were still destined for offshore investors.

But Kim Wicksteed, general manager of Saatchi Wellington and the creative force behind the airport float as well as Contact, WestpacTrust and Telecom, says the campaign was designed to give as many New Zealanders as possible the opportunity to invest.

"After that, what happens in the market itself is out of our control."

Mr Wicksteed says the biggest risk with a float is underspending on the campaign, or "not getting the float above the vagaries of the market."

"You've got to take it from nowhere to the top of [people's] minds - you've got to do extensive above-the-line campaigns to achieve that."

One complaint common to previous sharemarket offers was that the average small investor was "cut out of the loop" from receiving detailed company information that is usually sent to institutional investors and brokers.

John Paine, of DF Mainland, the underwriter and lead manager of the recent BeautyDirect IPO, says Mainland has largely overcome that problem with the internet and e-mail.

He says New Zealanders who have joined the swelling ranks of the private investment community have done so because of e-capabilities.

"We are amazed how many people [registered an interest] in investing in BeautyDirect over the internet. They can also click on to copies of the investment statement, the prospectus, research on the company, a hyperlink to the BeautyDirect website and a host of other information on our website," he says.

"For us it is a primary distribution channel, allowing us in some cases to bypass the traditional media channels for dissemination of market information.

"It is essential to keep investors informed after the buy-in as well, and the internet certainly empowers people to get their own information."

Julian Nixon, director of financial relations at Hill & Knowlton, agrees that solid, easily accessible information assists small investors.

"The essential challenge for marketing [to mum and dad investors] is that the people who buy the product off the shelf are not necessarily the people who would buy into the company," he says.

"But affinity with the product will help sell the shares of the company that markets or manufactures the product."