Financial PR: Trust in the City

If IPO contracts extend to journalists, will relations with the media need to change, asks Richard Carpenter.

There are few things journalists hate more than being told what they can or cannot write. Editors, admittedly, can just about get away with it.

But any outsider who tries to do this is almost certain to receive a backlash.

Yet this is what Virgin Mobile experienced in the run-up to its stock market flotation in July. Journalists receiving its draft listing prospectus found that they had to sign a legal contract noting that while the recipient was allowed to discuss the information in their own publication, it was with certain caveats.

It stated: 'You will not distribute, publish, reproduce or disclose the Draft Listing Particulars... through any medium to any other person,' - rather defeating the object of sending it out in the first place.

Some reluctantly signed but others refused to put pen to paper until they had consulted their in-house legal teams. The Daily Telegraph and The Sunday Times, among others, ran stories suggesting that Virgin Mobile and its advisers were being heavy-handed with journalists.

The matter arose in the first place because of the complicated legal rules surrounding certain types of stock market flotations where the shares are not being offered to the general public.

Designed to protect private investors, the rules allow investment banks to distribute draft prospectuses to the professional financial community to determine the level of demand for the shares. The proviso is that the flotation is limited to professional institutional investors and that the 'draft' prospectus is deemed to be incomplete so cannot be published.

Analysts have been complaining of the practice in recent times but the Virgin Mobile case was one of the first to extend that requirement to journalists. However, with a growing trend of lawyers sending out draft prospectuses with a legal contract attached, does this mean IR specialists and financial communicators will struggle to convey the message of trust about financial institutions to potential investors and the media?

Financial PR advisers are used to working within the legal restrictions on such deals but admit that some of the interpretations can be frustrating.

No financial PR adviser that PRWeek spoke to believed that the Virgin Mobile case was a deliberate attempt to bump up the price at which the flotation hits the market - just extremely conservative legal advice.

Finsbury, which worked on the deal, did not want to offer comment. But a Virgin Mobile spokesman explains: 'Our intention was to offer information in as equitable a manner as possible within the legal restrictions of an institutional offer.' Certainly, Virgin Mobile held detailed analyst and press briefings prior to publishing the final prospectus.

'A lot of it does come down to the interpretation by the different legal teams,' says Smithfield PR director Reg Hoare. He points out that fear of the US regulatory authorities in particular is acute: 'Some lawyers will definitely interpret the regulations more aggressively than others.

Our view has always been to try and be as robust as possible with the legal advisers and ask, where's the flexibility around this?'

The Maitland Consultancy executive chairman Angus Maitland agrees the regulations can be frustrating but points out this method isn't particularly new: 'The rules surrounding IPOs have always been quite tight but you just work within or around that framework. It would, for instance, be much nicer to be able to brief journalists on a price-sensitive announcement a long time in advance but you just can't do that.'

Signing on the dotted line

An increasing number of firms listing on the stock market choose to exclude small investors from the flotation due to the extra expense of a wider offer. That means that legal contracts, such as that used by Virgin Mobile, may become more common. That said, the Financial Services Authority confirms there has not been any tightening of the rules in recent times that might have initiated such legal conservatism. It states: 'Under a 20-year-old European directive you cannot publish unapproved listing particulars since they are sometimes subject to change.'

Many other firms have gone through the same process and find the idea of asking journalists to sign legal contracts somewhat strange. David Bogg, head of media relations at Benfield Group, which listed in June 2003, doesn't like the idea of presenting journalists with legal letters.

'We were very open when we came onto the market and certainly didn't get any journalists to sign any contracts. As far as I'm concerned, it was a straightforward financial communications project,' he says.

Hoare suggests that the problem might lie with outdated regulations rather than with the lawyers themselves. Legal teams are, after all, simply interpreting the regulations as they stand: 'City editors have had frustration with this sort of thing going back a number of years.' He points out that it regularly arises as an issue when you can publish in the UK but not in the US - something that is effectively ruled out by virtually all copy being available on the internet.

'You could also buy a copy of the FT at Heathrow, get on a plane and read it in the US later that day. So what?' he adds, pointing out the total impracticality of separating audiences either by jurisdiction or by nature. 'It's all really a bit silly in today's world. These types of regulation need to be updated.'

Until then, journalists may well have to get used to these kinds of legal contracts - handling the media relations side will be the key issue for financial communicators.



'Virgin Mobile and Premier Foods were certainly the first instances that we'd come across this sort of thing so it would be difficult to say if it was becoming a trend - they happened in quick succession. As I understand it, the rules are there to protect retail investors because there isn't perfect information in (the draft prospectus). But if you're trying to get to the perfect price, an open discussion is critical. It's extraordinary to try and prevent that.'


'I thought the whole thing was bizarre to say the least. I can imagine that this was an over zealous lawyer who said it had to be done this way, but if I was the financial PRO I'd have argued strenuously against it.

It certainly did not endear the company to the press. It's worrying if we are seeing something that has become a bit of a trend for the analyst community being extended to the journalist community.'

Simon Fluendy, Mail on Sunday 'On the one hand, I could view it as a storm in a teacup. I think there was an over-cautious lawyer on the float who said that when we hand this out to journalists we should get them to sign this contract. On the other hand, it is part of a general tendency of companies to try and control the information in floats that much more closely. That's true of the wider relationship between financial PROs and journalists, though.We have to be that much better to stay ahead of the game.'


'I never signed the document but received one anyway from one of my colleagues on the daily newspaper. I think this type of contract is quite rare and came as quite a surprise to a lot of people. It's untrustworthy and I don't think it shows much respect for any of the journalists. It may be a sensitive legal issue but they didn't need to do it like that.'

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