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.

AuthorLaVoie, Donna
PositionInternational 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...

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