Diane Francis on Business Issues

Monday, July 17, 2006

Gossip

Diane Francis Post column for Saturday Post July 15:

Enron Corp.'s disgraced former Chair and CEO Ken Lay was no sooner laid to rest this week at a VIP-laced funeral, than the rumor mill launched again.
What were the circumstances of his death? Did he have access to his medicine? Did he stop taking it?
Most importantly, does this actually mean, as reports have stated, that his death will erase his conviction and that the government cannot seize his tens of millions of dollars worth of ill-gotten gains?
"There has been no evidence of foul play in this unfortunate death," said Houston lawyer Michael Wynne, who attended much of the Enron trial. He's with Yetter & Warden.
"But his death means that the criminal case will be abated which means that it will be legally treated as if he was never even charged," he said in a telephone interview this week. "This is because his death means he has no opportunity to pursue an appeal."
However, the government and others have other options to pursue.
"There are many civil proceedings against his estate, a class action from shareholders, others from employees and several more," he said. "There is a lower burden of proof in civil matters. And history cannot be erased. A jury found him guilty of crimes, beyond a reasonable doubt."
Another remedy for the government is to pursue forfeiture through the Securities & Exchange Commission, he said.

Genghis "Con" Got Smart Again
Several weeks ago, Mongolia threatened to shut down its mining boom, led by hundreds of Canadians, by proposing confiscatory royalties on production.
There was an immediate outcry. Myself and others urged Ottawa to issue a stern diplomatic rebuke on the basis that hundreds of millions of dollars' worth of Canadian savings were directly and indirectly at stake invested through stakes in Canadian mining ventures.
Good news is that Mongolia.
"Mining is back in the saddle," said mining consultant and analyst Terry Ortsland in an email to me this week. I joined up last year with him and others to tour Mongolia and its promising government and industry. "Now they have much better mining laws and taxation details has been enacted. Reality sank in - and that was fast!!"
Also quick off the mark to congratulate Mongolia for coming to its senses is the biggest single player there - Ivanhoe Mines Ltd.
It has invested hundreds of millions and made a huge copper/gold discovery in the Gobi.
Mongolia's amended Minerals Law extends the time to 30 years that binding contracts with the regime will last if more than US$300 million is invested, according to an Ivanhoe press release. Also, the government also agreed to appoint impartial international advisors to help craft these contracts with mining companies.

Red Tape Remedy
Dealing with governments is always a nightmare even when regimes play fair with investors.
For years, Felicia Salomon dreaded the countless compliance forms and documents she had to wade through constantly as in-house counsel for a Canadian insurance conglomerate.
Three years ago, she decided to harness technology to overcome such legal drudgery and started a soft-ware based legal consulting firm called Corporate Responsibility System Technologies Ltd, in Toronto. The company just opened a New York City office.
Her system has boiled down all the overlapping regulatory and legal frameworks into simple templates, or modules, based on the separate compliance requirements, be they a stock exchange, securities commission or financial institutional watchdog.
Her modules translate complex legalese into simple English, and allows corporate users to easily follow instructions and fill in the blanks. Client companies pays fees and get logins to access the modules off a browser. Training takes only hours.
"For instance, it took us four to six hours to train 50 users at the Royal and SunAlliance [Insurance] in groups of three or four," she said. "We've taken some of the chore out of it."

Wall Street Looks After Number One
All the concerns about excessive executive compensation have fallen on deaf ears when it comes to America's biggest financial gatekeepers. Some breathtaking wealth has been accumulated by the big five CEOs, according to recent newspaper reports.
James Cayne, Chair and CEO of Bear Stearns Cos. is worth US$1B in stock, according to recent estimates; Goldman Sachs Group Inc. CEO Henry Paulson is worth US$749.2 million; Lehman Brothers Holdings Inc. CEO Richard Fuld, US$851 million; American Express Co. CEO Ken Cheanult, US$332 million and Bank of America Corp. CEO Kenneth Lewis, US$331.4 million.

Tuesday, July 11, 2006

Madison Avenue Buzz

Diane Francis column Friday Post July 7:




Procter & Gamble is the world's biggest advertiser, spending US$4.6 billion in 2005, or as much as a small Canadian province.
This giant has stayed ahead of the curve, and its competition, for decades by clever marketing which has turned its brands into household words. Its mega-sellers include Crest toothpaste, Tide, Clairol, Pampers, Pantene and Mr. Clean.
But worrisome to the advrtising world - and the media companies it subsidizes -- is the fact that for the past two years P&G has cut spending by more than the rate of inflation.
This is due to a number of reasons. For starters, marketing shifts online which is cheaper than traditional media outlets. And advertising cuts also occur after merger activity. Last year, P&G's overall advertising budget fell 3.7% as it absorbed gigantic Gillette, took on more overheads and rationalized marketing efforts.
But P&G has also just undertaken an initiative that bypasses advertising agencies and media alike and competes with them. It is called Vocalpoint and is a unique word-of-mouth network created in order to sell and research products.
P&G has recruited 600,000 "moms", who have visited its website, Vocalpoint.com and signed on as volunteers. They are handpicked because of their extensive social connections, through volunteer, theatre, sports, church, work or other activities. They must have children under the age of 19 years. They are called "connectors".
They are given products for free to test, then asked to comment online weekly. Some unlaunched products are being tested by these "Moms".
"Vocalpoint is a word-of-mouth advocacy program that focuses on the thoughts and opinions of `Moms'," said P&G spokesperson Robyn Schroeder in a recent telephone interview. "It was nationally launched in February following test markets in Buffalo, Tulsa and Columbus. At P&G, we know that moms express terrific ideas and want to communicate with companies in a way that will allow their point-of-view to be heard. Vocalpoint provides them with that vehicle, as well as, gives them a first hand look at products or services to share with their social networks."
P&G won't say how big their budget is to create this network, or how many people are employed recruiting, training and dealing with this giant army of "Moms".
But the subsidiary, Vocalpoint, is also becoming a profit center because it is selling its word-of-mouth and research services to other corporations.
"About 50% of our effort is as an outsource advocacy program for other companies," she said.
Vocalpoint came out of our successful word-of-mouth marketing program involving teens called Tremor.
"It began five years ago and is still in existence today to provide teens with cool new products and services that allows them to influence marketers and manufacturers," she said. "We have 250,000 teens in our database."


Dollars follow Eyeballs

The name of the game in advertising is determining how to get your message in front of as many "eyeballs" as possible. That's why research into how people spend time with various forms of media is critical.
PriceWaterhouseCoopers and Knowledge Networks came up with some interesting research recently.
Currently, consumers spend 51% of their media time watching television; 23% listening to radio; 15% on the Internet; 3% reading magazines; 3% playing videogames and 4% reading newspapers.
Over time, this pie has been divided up differently and obviously the eyeballs focused on the Internet have been followed by an increase in online advertising. In 1997, online advertising revenue in the U.S. was only US$1 billion and last year exceeded US$12.5 billion. That figure still represents only 5% of the total amount spent on advertising but is expected to grow dramatically.


The British are Coming

The British media has been characterized by a broadcast oligopoly, dominated by the BBC, and, at the same time, wild and healthy competition in the print media with a plethora of newspapers and magazines.
But the old dowager of broadcasters, the BeeB, has certainly taken a page from its print cousins in the UK and launched an aggressive global branding initiative that is starting to position it as a worldbeater in many markets.
Recently, a giant billboard in Times Square heralded to the marketing mavens in this city, the BBC's arrival and ambition in this huge economy.
The network's also been very successful already. Its radio news and feature broadcasts are now heard daily throughout the United States on most National Public Radio affiliates. Its television coverage has insinuated itself on cable line-ups in most regions of the U.S. and around the world.
Most impressive, is the fact that its website has become one of the top ten worldwide, in terms of hits - bigger than any of the U.S. networks.
Besides that, it just launched an Arab-language television service to tap into that half-a-billion-plus marketplace.
Also interesting to note, and unconnected, is a milestone recently passed by another British media institution - the venerable, wonderful Economist magazine. It just surpassed the one million circulation mark worldwide.

TSX versus AIM

Diane Francis Saturday Post Column July 8:

Figures show that the Toronto Stock Exchange remains the world's pre-eminent market for mining stocks and is holding its own despite aggressive competition from London's AIM "junior" exchange.

"There is a significant part of the AIM story that's not being reported," said Kevan Cowan, Senior VP for the TSX and its venture exchange. "AIM is a media darling but the inter-listed picture is not being shown. Of the 42 Canadian companies listed on AIM, 36 are inter-listed back in Canada. They're not bypassing the Canadian market but are accessing AIM for additional capital."

And the lion's share of the after-market trading for these companies occurs in Toronto, in some cases 90% or more, he said.
But some eyebrows were raised this spring when Canaccord Adams snagged a L20 million IPO on AIM, not the TSX, for Waterloo technology company, Sandvine. Were promising Canadian companies going to start to bypass the national exchange?

TSX officials say that their figures show that Toronto has little, if anything, to worry about concerning the fast-growing AIM market.

They say that AIM should only be compared to a combination of the TSX and TSX Venture Exchange, and not just the Venture Exchange, because the average market cap of AIM and TSX companies are comparable.

"50% of AIM and TSX companies have a market cap of C$50 million to C$250 million. 90% of the companies on the Venture Exchange are less than C$25 million in size," he said.

What's undeniable is that AIM has grown rapidly in the past three years, garnering more listings than the NYSE, Nasdaq and the TSX. But here are some figures comparing Canada's exchange and AIM:

-- The TSX and TSX composites outperformed AIM and the London Stock Exchange between 2001 and 2005 with the TSX up 46.6%; TSX Venture 115.8% and Footsie, AIM 16.5%.

-- On the all-important mining side, Canada continues to dominate, raising C$7.9 billion in equity for listed mining companies in 2005 compared to only $2.2 billion raised on the both the LSE and AIM.

-- In 2005, Toronto had 1,192 listed mining companies and London only 183 but some British listings are global giants such as Rio Tinto Zinc. The result of this is that the overall market caps of the exchanges are similar. Toronto's mining companies at the end of 2005 were worth C$207.2 billion and London's (including AIM) C$266.3 billion.

-- AIM has 220 international listings compared to TSX's 165 at the end of 2005.

-- TSX surpassed AIM in terms of total equity capital raised, quoted market value of listed issuers and by value traded. For instance, in 2005 equity capital raised by TSX/TSX Venture was C$55 billion compared to AIM's C$20 billion.

-- TSX/TSX Venture surpassed LSE/AIM in the mining and oil & gas sectors by number of issuers, new listings and equity capital raised. In addition, TSX/TSX Venture far surpassed AIM in the mining and oil & gas sectors by value traded.

-- In 2005, there were only three Canadian "by-passers" solely listed on AIM, BDI Mining Corp., Hard Assets Inc. and Sanatana Diamonds Inc.

Mr. Cowan, in charge of business development for the TSX Group, said the exchange is also aggressively seeking American and other international listings, as is AIM. The angle here is that these companies can list in Canada, benefit from North American following and yet avoid the cost and complexity of Sarbanes Oxley filings. Time zones are the same, as is the legal system and business culture.

"We are looking at listings in three areas -- mining, oil & gas and, with great traction, small and medium enterprise generally," he said.

TSX officials have zeroed in on small and medium American firms to explain the benefits of the "Canadian option" for their IPOs.

(AIM has even fewer regulatory requirements and has an unusual governance model that outsources regulation and monitoring of listed companies to designated investment bankers, called NOMADs or Nominated Advisors.)

"Our standards are higher than the AIM regime, but we don't require the most expensive requirement under Sarbanes Oxley which is 404 or the internal control certification by an external auditor. Securities commissions have decided not to require this here," said Mr. Cowan.

Marketing efforts have yielded some results and last year the TSX listed 21 U.S. companies, a number which has grown for three years in a row.

"An American company that lists only in Canada has to comply with Canadian reporting issuer requirements," he said.

If such companies eventually acquire a large base of American shareholders then they would have to comply with all the U.S. requirements.

Also, some Canadian companies with listings south of the border are analyzing the costs of complying with the American red tape, possibly with a view toward listing only on the TSX, say industry sources.

Wednesday, July 05, 2006

Canaccord's Coup

Diane francis column friday June 28 out of LONDON


This spring, Toronto's Bay Street stood to attention when the Toronto Stock Exchange was bypassed and Waterloo Ontario technology star, Sandvine, did a C$300 million IPO on to London Stock Exchange's AIM junior market.

Its lead underwriter, called a NOMAD on AIM, was Canaccord Capital Inc. of Vancouver through its London operation called Canaccord Adams.

"Sandvine is a world class company with global ambitions which can list on any exchange," said London managing director Neil Johnson. "That certainly sent a message. We are also working on a Silicon Valley venture which will shortly be listed on AIM and probably no where else."

In fact, he predicts that the next wave of listings, by venture capital start-ups that have matured, will go on AIM for a variety of reasons and not traditional stock exchanges where red tape and costs are excessive.

"Many of these companies are ready for an exit and AIM has become an ideal, and the most reasonable, exit strategy for ambitious companies," he said.

What's most unique and controversial about AIM is its leaping success (twice as many listings last year and this year so far as the Nasdaq and NYSE combined). Canaccord is the biggest investment banker on AIM and the only Canadian one.

AIM (Alternative Investment Market) began in 1995 and is now Europe's second largest with 1,650 listed companies, and three times' the market capitalization of the TSX Venture Exchange.

Roughly 16% of listed companies are Canadian but these companies represent nearly one-third of the value of the exchange.
What Toronto officials should note, and others in Europe have, is that AIM's governance model is more effective, translates into cheaper listing costs and provides a nifty way for smaller entities around the cumbersome Sarbanes Oxley.

"The one-size-fits-all regulatory framework is a problem for smaller companies when it comes to Sarbanes Oxley," said Mr. Johnson.

Governance on AIM, essentially, has been outsourced to professionals and not bureaucrats without real world experience.

Each listed company is brought into the market by a NOMAD, or Nominated Advisor, which is responsible for its compliance thereafter. NOMADs are carefully scrutinized by the London Exchange and British regulatory authorities and must be licensed and established for some time in Britain.

In return for monitoring and mentoring, NOMADs make fees and get underwriting opportunities.

"We are on the hook every day for our listed companies. My license to do business is at stake," said Mr. Johnson.

Of the 85 people in Canaccord's London office (it has 1,500 worldwide), 22 people are in its NOMAD department. Each of its dozens of listings have two persons assigned who monitor and sign off on financial or news release information.

AIM also requires research for all its listings, unlike other exchanges. NOMADs must assign a research analyst to report on the progress of the listed companies in their stable.

The system depends on the quality and integrity of AIM's 85 NOMADs which is why it takes months for interested brokers to pass muster. Some four licenses have been lifted since 1995, but none in recent years, said an AIM spokesperson.

Savings are significant for companies like Sandvine: AIM listings cost US$900,000 compared to US$2 million on NASDAQ and slightly less on the TSE.

Ongoing compliance costs can be as high as US$2.5 million per year south of the border and less than US$1 million a year on AIM.

"Nine of 20 biggest AIM companies are Canadian such as First Quantum, Yamana, Bema Gold, First Calgary, Oilexco, Sandvine and Canaccord Capital Inc.," said Mr. Johnson. "Since we bought Adams Harkness in the U.S. last year, we have sensed great interest this year in the U.S. from boutiques that want a relationship with a NOMAD to take companies public to law firms there just checking out the AIM process."

The world's biggest institutional investors have also taken notice.

"They are here now investing," said Mr. Johnson. The biggest participants are Fidelity, Artemis, Schroder Investment Management, Merrill Lynch, UBS, Invesco, Goldman Sachs, JP Morgan and Prudential, to name a few.
AIM is also now very efficient, he said.

"We measure liquidity to capitalization and 90% of AIM's value (L74 billion) is traded annually," said Mr. Johnson. "This is more liquidity than the TSE and TSX."

The system of NOMADs deploys the old boys' network to police the market by deputizing them to mentor and monitor their listings. By contrast the U.S. system is a rules-based one which has become too expensive and a field day for lawyers. Toronto is somewhere inbetween.

But the Toronto Stock Exchange, with its old boy network, could easily adopt the AIM system and perhaps offer a more convenient alternative to American companies than London has, he said.

Members of the TSE should take note.

30

Canaccord's Coup

Diane francis column friday June 28 out of LONDON


This spring, Toronto's Bay Street stood to attention when the Toronto Stock Exchange was bypassed and Waterloo Ontario technology star, Sandvine, did a C$300 million IPO on to London Stock Exchange's AIM junior market.

Its lead underwriter, called a NOMAD on AIM, was Canaccord Capital Inc. of Vancouver through its London operation called Canaccord Adams.

"Sandvine is a world class company with global ambitions which can list on any exchange," said London managing director Neil Johnson. "That certainly sent a message. We are also working on a Silicon Valley venture which will shortly be listed on AIM and probably no where else."

In fact, he predicts that the next wave of listings, by venture capital start-ups that have matured, will go on AIM for a variety of reasons and not traditional stock exchanges where red tape and costs are excessive.

"Many of these companies are ready for an exit and AIM has become an ideal, and the most reasonable, exit strategy for ambitious companies," he said.

What's most unique and controversial about AIM is its leaping success (twice as many listings last year and this year so far as the Nasdaq and NYSE combined). Canaccord is the biggest investment banker on AIM and the only Canadian one.

AIM (Alternative Investment Market) began in 1995 and is now Europe's second largest with 1,650 listed companies, and three times' the market capitalization of the TSX Venture Exchange.

Roughly 16% of listed companies are Canadian but these companies represent nearly one-third of the value of the exchange.
What Toronto officials should note, and others in Europe have, is that AIM's governance model is more effective, translates into cheaper listing costs and provides a nifty way for smaller entities around the cumbersome Sarbanes Oxley.

"The one-size-fits-all regulatory framework is a problem for smaller companies when it comes to Sarbanes Oxley," said Mr. Johnson.

Governance on AIM, essentially, has been outsourced to professionals and not bureaucrats without real world experience.

Each listed company is brought into the market by a NOMAD, or Nominated Advisor, which is responsible for its compliance thereafter. NOMADs are carefully scrutinized by the London Exchange and British regulatory authorities and must be licensed and established for some time in Britain.

In return for monitoring and mentoring, NOMADs make fees and get underwriting opportunities.

"We are on the hook every day for our listed companies. My license to do business is at stake," said Mr. Johnson.

Of the 85 people in Canaccord's London office (it has 1,500 worldwide), 22 people are in its NOMAD department. Each of its dozens of listings have two persons assigned who monitor and sign off on financial or news release information.

AIM also requires research for all its listings, unlike other exchanges. NOMADs must assign a research analyst to report on the progress of the listed companies in their stable.

The system depends on the quality and integrity of AIM's 85 NOMADs which is why it takes months for interested brokers to pass muster. Some four licenses have been lifted since 1995, but none in recent years, said an AIM spokesperson.

Savings are significant for companies like Sandvine: AIM listings cost US$900,000 compared to US$2 million on NASDAQ and slightly less on the TSE.

Ongoing compliance costs can be as high as US$2.5 million per year south of the border and less than US$1 million a year on AIM.

"Nine of 20 biggest AIM companies are Canadian such as First Quantum, Yamana, Bema Gold, First Calgary, Oilexco, Sandvine and Canaccord Capital Inc.," said Mr. Johnson. "Since we bought Adams Harkness in the U.S. last year, we have sensed great interest this year in the U.S. from boutiques that want a relationship with a NOMAD to take companies public to law firms there just checking out the AIM process."

The world's biggest institutional investors have also taken notice.

"They are here now investing," said Mr. Johnson. The biggest participants are Fidelity, Artemis, Schroder Investment Management, Merrill Lynch, UBS, Invesco, Goldman Sachs, JP Morgan and Prudential, to name a few.

AIM is also now very efficient, he said.

"We measure liquidity to capitalization and 90% of AIM's value (L74 billion) is traded annually," said Mr. Johnson. "This is more liquidity than the TSE and TSX."

The system of NOMADs deploys the old boys' network to police the market by deputizing them to mentor and monitor their listings. By contrast the U.S. system is a rules-based one which has become too expensive and a field day for lawyers. Toronto is somewhere inbetween.

But the Toronto Stock Exchange, with its old boy network, could easily adopt the AIM system and perhaps offer a more convenient alternative to American companies than London has, he said.

Members of the TSE should take note.