BP Grapples With Investor Conundrum

Company Must Reassure Shareholders With Positive Message Without Being Insensitive to Gulf Residents

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NEW YORK (AdAge.com) -- When BP holds its second-quarter earnings call in late July, the best news the residents of the Gulf could hear about the oil company is a message of financial strength and confidence about its future, no matter how angry they may be about the spill in the Gulf.

BP has spent over $2 billion on the cleanup already and will surely face thousands of lawsuits once all is said and done.
BP has spent over $2 billion on the cleanup already and will surely face thousands of lawsuits once all is said and done. Credit: BP
A message of reassurance, as insensitive as it may seem, is the type of message BP needs to communicate to keep investors from jumping ship -- and if the thousands of negatively affected Gulf residents want any form of restitution, BP needs to hold on to its investors.

The IR specialists Ad Age spoke with all agreed that investor relations is a tightrope BP must walk and that it would be to the benefit of the victims if BP were able to communicate a positive message to shareholders. An IR specialist who asked not to be identified said BP will need its investor base to meet what will most likely be billions in litigation claims.

"If the stock plummets to such a level that they have to file bankruptcy protection or get bought out by another company, that's not necessarily good for the victims," the executive said. "For the victims to be recognized and litigation claims to be resolved, the company needs cash. It's not a bad thing to communicate to investors, as long as it is one element of BP's larger management of all this, and job No. 1 remains the capping of that well."

For any publicly traded company in the midst of a serious crisis, let alone a 75-day-old oil spill, investor relations can be just as critical a component to its survival as customer relations. And odds are BP's investors are anxiously waiting to hear from the company about its solvency. Since the oil leak began in late April, BP has lost more than half its market value. But that's not the only thing that should have its investors concerned: The company has also canceled the first-quarter dividend, its stock price is at a 14-year low, consumers are boycotting stations, it has set up a $20 billion escrow account for damages, spent over $2 billion on the cleanup already and will surely face thousands of lawsuits with a final tally somewhere in the billions once all is said and done.

But how can a company whose oil spill has now reached the feet of children on Florida beaches and crippled the livelihoods of thousands in the Gulf go around talking to investors about its financial strength without looking as if it's more concerned for its own future than that of the Gulf, its residents and their futures?

Claire Koeneman, president Interpublic Group of Cos.' MWW Group's Financial Relations Board, said BP has to speak to investors because they are the bosses of the company.

"It always presents a challenge when something like this happens to a publicly traded company, because people are so focused, and rightfully so, on the tragedy," Ms. Koeneman said. "But BP is also a company and has a set of stakeholders that isn't made up of the general public, the victims or the government."

'$140 billion range'
An executive at a major communications firm said the best thing BP can do is to provide more transparency and clarity to its balance sheet. "BP needs to show it understands that the final bill for this spill could be in the $140 billion range, and that it still has the wherewithal to meet those claims," the executive said. "They have to show the strength of their assets, show the amount of cash on hand. Literally, just provide information -- no predictions and no spin." The executive added that BP should show the market and investors that it has valuable assets, which aren't necessarily core to their business but that the marketplace attributes value to, and a strong plan to sell those assets to help recapture value.

A BP spokeswoman, who didn't want to be named, said the company does not comment on its investor-relations efforts other than to say that regular communications with shareholders includes a normal strategy briefing and quarterly reports on results. "All of our focus now in on the crisis-communications effort," the spokeswoman said.

The spokeswoman said since the crisis began BP added an extra strategy briefing that took place June 4. "We have not had the opportunity to speak to you as a group since the events of 20th April, and we wanted to bring you up to date with what we have been doing," Carl-Henric Svanberg, BP chairman, said in the briefing. A second briefing was held June 16 after BP announced it would set up a $20 billion escrow fund for damages. Mr. Svanberg also posted a letter to investors on BP's site stating that he understood the company's recent decisions and actions would significantly impact investors. He added that he would write to shareholders "shortly" and that BP could restore the "trust of our shareholders and stakeholders."

When reached on the BP press office line last week, David Nicholas, a spokesman for BP, said he could not comment on whether or not BP CEO Tony Hayward was meeting with or planning to meet with investors in the U.K. "He regularly meets with our investors," Mr. Nicholas said. "He's in the U.K. at the moment, but we won't comment on what he's doing right now." Mr. Nicholas added that he was not sure if Mr. Hayward met with investors while he was in the U.S.

Ms. Koeneman said BP could be doing a better job of communicating to investors. "Those two calls in June were more situational and not business updates," she said. "In a crisis like this it's easy to forget about the stakeholder. BP has to remain as transparent with financials as possible. People are angry, and they want some type of retribution or money for the victims, but in reality it's not like they want to take the company down."

A high-ranking executive at a leading IR firm said there is a "significant possibility" BP goes bankrupt and that the company's lawyers are most likely advising BP that it should not make any definitive statements to the market or investors that they are going "to be all right." The executive said the company risks getting sued by shareholders should it go bankrupt after telling them the company was financially sound. "And as part of that lawsuit they will ask for discovery, where they will read the e-mails BP executives could be sending to one another right now saying things aren't fine," the executive said. "That's securities fraud. You can't tell the market something you know to be untrue. They are being very careful right now and I don't think they have much of a choice."

It was reported last week in Bloomberg BusinessWeek that BP was being sued by members of its employee savings plan due to losses connected to the plunging stock price.

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