The week in investor relations: Wall Street seeks to ‘skirt’ buyback tax, Invesco launches metaverse-focused equity fund and Ben & Jerry’s loses case against Unilever
– Bankers and lawyers on Wall Street are hunting for ways to help companies buy back shares next year without having to pay millions of dollars in extra tax, reported the Financial Times (paywall), in a move it says puts at risk one of the main revenue generators in president Joe Biden’s climate and health package.
At the center of their efforts is the use of accelerated share repurchase programs, a commonly used mechanism allowing companies to complete buybacks that can be worth billions of dollars. Although the programs are recorded as having been executed on a single day, it often takes several months for banks to complete the trades, says the paper, adding that the plans hinge on whether forthcoming Treasury guidance will count the day that the company forks over the cash and receives its shares as the date of the buyback, or whether they will have to wait until investment banks actually buy the stock in the open market.
– CityWire reported that Invesco has launched a dedicated metaverse-focused equity fund. The geographically diversified fund, featuring companies from the US, Asia and Europe, will include firms helping to facilitate, create or benefit from the growth of immersive virtual worlds.
Tony Roberts, who oversees Asia-focused equity strategies at Invesco, said it has been estimated that virtual and augmented reality could be a £1.4 tn ($1.6 tn) market by 2030. ‘While the metaverse’s applications to entertainment are increasingly well-understood, the interconnectivity that it enables will likely have a transformative impact across industries as diverse as healthcare, logistics, education and sport,’ CityWire reported him as saying.
– A US judge has denied a request by Ben & Jerry’s to stop a deal by its parent company Unilever that allows its ice cream to continue being sold in Israeli settlements in the occupied West Bank, said the BBC. In June, Unilever reversed a decision by Ben & Jerry’s to halt such sales and instead agreed to transfer its Israeli business to the local licensee. The ice cream maker’s board argued that its social mission could be undermined but the judge said the company had not shown it would suffer irreparable harm.
– The Wall Street Journal (paywall) reported the news that the SEC has voted to require companies to disclose how well top management’s pay tracked with corporate performance over several years in what it describes as ‘the culmination of a long-delayed effort’ by the regulator.
The new rule puts into practice a provision required by the 2010 Dodd-Frank Act to discourage financial fraud and better align executive compensation with corporate results. The SEC initially proposed the rule in 2015 under previous chair Mary Jo White. This week commissioners voted 3-2 in favor, with Republican Commissioner Mark Uyeda saying the SEC had failed to update stale data and economic analysis and fellow Republican Commissioner Hester Peirce saying the rule is unnecessarily complicated and will be costly for companies to implement.
Under the rule, US public companies must provide a new table in their annual proxy filings that contains executive compensation and financial performance measures covering a period of up to five years.
– Chief executives of the UK’s 100 biggest companies have seen their pay jump by 39 percent to an average of £3.4 mn, reported The Guardian, citing research by the High Pay Centre think tank and the Trades Union Congress. The median average pay of CEOs of companies in the FTSE 100 index rose to £3.4 mn in 2021, compared with £2.5 mn in 2020 during the height of the coronavirus pandemic when many bosses took a voluntary pay cut as they placed millions of employees on furlough. CEO pay has also surpassed the £3.25 mn median recorded in 2019, before the pandemic.
The jump in executive pay means that the average UK CEO now collects 109 times that paid to the average British worker, up from 79 times in 2020.
– Business Insider reported that firms including Coinbase and Robinhood, are ‘heavily relying on issuing more stock to woo new employees now that a plunging stock market has lowered the value of these shares’. It added however that JPMorgan analysts said this practice could negatively impact existing shareholders. To keep pace with employee-compensation packages and to match previous ones, companies will issue extra shares, explained the publication, though it also noted the practice ‘significantly dilutes value for existing shareholders once the shares vest’ – something that will continue over a number of years, according to a report from two JPMorgan analysts.
– In other Coinbase news, the company that last year became the first cryptocurrency exchange to go public in the US is facing a string of lawsuits from unhappy investors, reported CoinDesk. The latest alleges that the crypto exchange failed to secure users’ accounts against theft and hacks, and seeks damages upwards of $5 mn. It comes in addition to another aspiring class action lawsuit filed in New Jersey alleging the company allowed US persons to trade unregistered securities, said the publication, adding that earlier this month, a Coinbase shareholder accused the company of misleading investors about its IPO. The platform is also trying to settle two separate lawsuits filed by investors through arbitration.
– The Guardian reported on calls for a windfall tax after companies at the center of the global grain trade have enjoyed a record bonanza amid soaring food prices around the world, raising concerns of profiteering and speculation in global food markets that could put staples beyond the reach of the poorest. The world’s top four grain traders, which have dominated the global grain market for decades, have seen record or near-record profits or sales. They are forecasting demand to outstrip supply at least until 2024, which is likely to lead to even higher sales and profits in the next two years.
The paper quoted Olivier De Schutter, a co-chair of the International Panel of Experts on Sustainable Food Systems and UN special rapporteur on extreme poverty and human rights, as saying: ‘The fact that global commodity giants are making record profits at a time when hunger is rising is clearly unjust, and is a terrible indictment of our food systems. What’s even worse, these companies could have done more to prevent the hunger crisis in the first place.’
– Reuters (paywall) reported that investors had ‘yanked’ a net $7.8 bn out of hedge funds in the second quarter of the year, citing industry data published this week, as volatile markets sent many looking for safer places to keep their cash. Large investors like pension funds, asset managers and family offices pulled more money out of hedge funds than they added, said the news agency citing figures from administrative data firm Citco, ending an 18-month trend of them investing more.
– ‘Nasdaq’s growing ESG business is under threat,’ said the FT – from Nasdaq. The company is ‘waging a battle’ to dilute the SEC’s climate change disclosure proposal, said the paper, which would force companies to reveal their direct greenhouse gas emissions and have them verified by a third party. If enacted, the proposal would undoubtedly boost subscriptions to Nasdaq’s platforms Metrio and OneReport, both of which are intended to help companies measure and disclose ESG data, but the stock exchange is reportedly worried the rules could hurt its core listings business and has joined ‘dozens’ of other firms in ‘blasting the proposals’.
Nasdaq has reportedly said the climate proposal ‘could deter many companies from going public’ due to higher compliance costs and an increased risk of facing litigation from investors.
– In other ESG news, the FT also reported that Federated Hermes, which it describes as ‘a champion of environmentally friendly investment strategies,’ is coming under increasing pressure to explain its sponsorship of the State Financial Officers Foundation – a Republican coalition of senior US public officials that opposes action on climate change.
Federated Hermes said in a statement that the relationship ‘does not serve as an endorsement of any organization’s particular perspective on any issue.
‘Diversity of thought and respect for the views of others, no matter how they differ from our own, is critical to long-term consensus building and the betterment of our world,’ wrote chief executive Christopher Donahue.
– The WSJ reported that the US and China are nearing an agreement that would allow American accounting regulators to travel to Hong Kong to inspect the audit records of Chinese companies listed in New York, citing people familiar with the matter. The issue has been a ‘yearslong standoff,’ said the paper but securities regulators in Beijing are reportedly now making arrangements for US-listed Chinese companies and their accounting firms to transfer their audit working papers and other data from mainland China to Hong Kong.