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KCSA Public Relations was retained by 4Kids Entertainment, Inc. after the company was hit by an onslaught of short-selling of the company’s stock, causing the stock to drop from $92 per share to $8 per share. KCSA was charged with communicating the solid business base of this leading U.S. licensor of children’s properties and informing investors throughout the U.S. of the Company’s true value. KCSA created an aggressive investor relations program that coupled thorough research and targeting of institutional and retail investors and sell-side analysts with aggressive financial media relations.
KCSA’s investor relations program for 4Kids is worthy of a SABRE Award because its careful design and thorough execution achieved all of the company’s goals, despite the bear market of 2001. Short-sellers were “squeezed,” with their interest in the company declining by more than 3 million shares. Institutional ownership increased from less than 20% to more than 33%. Significant financial media placements told the 4Kids story and explained the value inherent in the Company. New financial analyst coverage was secured; and the Company’s stock price more than doubled from $8 to $19 per share, with its P/E ratio tripling. The 4Kids Entertainment investor relations campaign is a classic example of “Building Credibility and Restoring Value.”
Investor Relations Challenge:
4Kids Entertainment is the worldwide licensing agent for Nintendo whose largest international entertainment property is Pokemon. During Christmas of 1999, Pokemon was an incredible phenomenon not only in the U.S., but also internationally. As a result, 4Kids saw its stock skyrocket from single digits to as high as $93 a share. At this level, the stock was trading at a price/earnings multiple of approximately 72 times earnings. As the Christmas season came and went, rumors began to circulate among Wall Street’s short selling community that Pokemon was nothing more than a fad and would ultimately fade away taking 4Kids Entertainment with it.
In the fourth quarter of 1999, short sellers crushed 4Kids shares causing the stock to drop precipitously over the next twelve months. Even when the stock was knocked down to its new 52-week low of $8.31, the shorts continued to discredit Pokemon as a fad and made known their belief that 4Kids’ earnings performance would be short-lived. This necessarily caused management’s reputation to suffer.
Although Pokemon did represent more than 85% of 4Kids revenues in 1999, the Company’s potential for continued future growth and increased market share was growing as management further increased its penetration into the entertainment industry by identifying exciting new licensed properties and managing these assets carefully.
Because of the fast paced market activity and phenomenal overnight success of Pokemon, 4Kids never had an opportunity to convey its long-term strategy to institutional investors and analysts. Instead, 4Kids’ shareholder base consisted of more than 35,000 beneficial owners, most of whom were individuals who had purchased shares because their children and grandchildren were raving about Pokemon and its all-encompassing storyline. This situation created great volatility in the company’s share price and enabled short-sellers to strong-arm less savvy individual investors.
Objectives:
Beginning January 2000 and continuing through 2001, 4Kids Entertainment retained KCSA Worldwide to meet the following objectives: (a) to convey the Company’s long term growth strategy; (b) to rebuild management’s credibility following a significant share price decline; (c) to initiate a short selling squeeze by building positive momentum in the stock; and (d) to increase institutional ownership as a percentage of total ownership to reduce price volatility.
Audience Analysis and Research:
For maximum results, KCSA targeted several key audiences by objective, as follows:
Convey the Company’s long-term growth strategy: KCSA believes that healthy companies are defined by their long-term growth strategy. To this end, KCSA focused on conveying 4Kids long-term growth strategy to the broad investment community. This group included all institutional, retail, and individual investors as well as the broad financial and trade media.
Rebuild management’s credibility following a significant share price decline: Due to the sudden and severe price decline in the shares, KCSA targeted existing institutional and individual shareholders in order to demonstrate to them the sound foundation upon which their company was grounded. Given the difficulty in identifying this audience, in order to define it, KCSA (a) created an open line for existing shareholders to call KCSA representatives with questions about the company; (b) reviewed the Company’s recent 13-F reports; (c) reviewed the attendance rosters of past corporate events; and (d) identified reporters that had written negative or unfair articles about the Company and its management team
Initiate a short selling squeeze: In order to achieve this goal, it was necessary to identify and contact short sellers of 4Kids’ shares. This, too, is also a very difficult task. In order to determine this audience, KCSA (a) identified the most active market makers in the shares and worked with long-term shareholders to rule out potential sellers; (b) monitored company conference calls for “outspoken” antagonists; (c) interviewed existing shareholders and their trading desks to determine likely short-sellers. Another audience targeted to accomplish this objective was the sell-side analyst community that covers entertainment and leisure. These analysts could be valuable in providing a qualified third-party opinion and represent a formal, public contradiction to the often outspoken short-sellers.
Increase institutional ownership as a percentage of total ownership to reduce price volatility: KCSA targeted and identified momentum oriented investors and value investors at major institutions that would most likely be interested in the fundamentals of 4Kids Entertainment. This targeting effort focused on (a) investors that sought low share price/cash value ratios; (b) special situations; (c) low share price/enterprise value ratios; (d) price/earnings ratios less than 5x to 7x; (e) low price/EBITDA ratios. Targets were determined using KCSA proprietary databases as well as Internet based databases such as Big Dough. In addition, KCSA targeted financial reporters from major print and on-line business press that were likely to focus on price/cash evaluations and low price/earnings ratios.
Planning: An action plan comprised three phases to be implements over 18 months: (a) investor and financial analyst roadshows; (b) special corporate events that could be useful to the investor and media effort; and (c) news events that could be valuable to the investor and media effort. In addition, media relations was to take place throughout the entire program concentrating on breaking news as well as continuous pitching of the company story and business strategy.
Strategy, Execution and Tactics:
A two-pronged strategy was designed to: (a) bring in new institutional investors to squeeze out the short sellers and stabilize the company’s share price and (b) work with the financial media to get the word out regarding the true value, solid management team and excellent business model underlying the Company.
Investor outreach focused on live one-on-one meetings with new value investors attracted to the Company’s strong cash position and low overheads, thus reducing the control that short-sellers had on the shares. At the same time, KCSA actively requested meetings with known short-sellers to educate them about the real value of the company. Once momentum was established within the value investing community and short-sellers were addressed directly, the program shifted to building credibility and establishing an interest among entertainment industry analysts and investors. This was achieved by obtaining a listing for the Company on the New York Stock Exchange (from NASDAQ) and by meeting with sell-side analysts to gain support among retail stockbrokers as well as institutional investors.
At the same time, the financial media were targeted to tell the Company’s “value” story from a financial point of view and to highlight other licensed properties impacting the Company’s bottom line. Given the high profile nature of Pokemon and the overwhelming misperception that the property was fading away, KCSA was able to persuade major media that this was an important story, providing 4Kids’ management with a public forum to set the record straight.
To bring further credibility to 4Kids’ story, KCSA integrated its financial media and investor relations efforts by introducing new investors procured through the IR program to members of the financial media who spoke positively about the Company and helped to establish a valuable third party endorsement about the Company’s value.
Evaluation of Success:
Through the financial media and investor outreach, the company’s long-term growth strategy was made clear to all targeted audiences, and management’s credibility was restored. Perception of the Company by individual and institutional investors has increased, making 4Kids Entertainment highly visible in the entertainment industry. In 2000 and 2001, Fortune magazine ranked 4Kids as the #1 and #2 fastest growing company, respectively. In addition, the Company has gained licensing rights to several significant new properties as a direct result of its work with Pokemon and the heightened awareness of the Company’s business strength.
The “shorts” have been “squeezed” as their interest in the Company declined by more than three million shares. New institutional buyers have accumulated hundreds of thousands of shares, increasing the percentage of institutional investment from less than 20% to more than 33% currently. The Company’s stock price has rebounded, more than doubling from $8 to $19 per share with its P/E ratio tripling.
KCSA’s investor relations program for 4Kids is worthy of a SABRE Award because its careful design and thorough execution achieved all of the company’s goals, despite the bear market of 2001. Short-sellers were “squeezed,” with their interest in the company declining by more than 3 million shares. Institutional ownership increased from less than 20% to more than 33%. Significant financial media placements told the 4Kids story and explained the value inherent in the Company. New financial analyst coverage was secured; and the Company’s stock price more than doubled from $8 to $19 per share, with its P/E ratio tripling. The 4Kids Entertainment investor relations campaign is a classic example of “Building Credibility and Restoring Value.”
Investor Relations Challenge:
4Kids Entertainment is the worldwide licensing agent for Nintendo whose largest international entertainment property is Pokemon. During Christmas of 1999, Pokemon was an incredible phenomenon not only in the U.S., but also internationally. As a result, 4Kids saw its stock skyrocket from single digits to as high as $93 a share. At this level, the stock was trading at a price/earnings multiple of approximately 72 times earnings. As the Christmas season came and went, rumors began to circulate among Wall Street’s short selling community that Pokemon was nothing more than a fad and would ultimately fade away taking 4Kids Entertainment with it.
In the fourth quarter of 1999, short sellers crushed 4Kids shares causing the stock to drop precipitously over the next twelve months. Even when the stock was knocked down to its new 52-week low of $8.31, the shorts continued to discredit Pokemon as a fad and made known their belief that 4Kids’ earnings performance would be short-lived. This necessarily caused management’s reputation to suffer.
Although Pokemon did represent more than 85% of 4Kids revenues in 1999, the Company’s potential for continued future growth and increased market share was growing as management further increased its penetration into the entertainment industry by identifying exciting new licensed properties and managing these assets carefully.
Because of the fast paced market activity and phenomenal overnight success of Pokemon, 4Kids never had an opportunity to convey its long-term strategy to institutional investors and analysts. Instead, 4Kids’ shareholder base consisted of more than 35,000 beneficial owners, most of whom were individuals who had purchased shares because their children and grandchildren were raving about Pokemon and its all-encompassing storyline. This situation created great volatility in the company’s share price and enabled short-sellers to strong-arm less savvy individual investors.
Objectives:
Beginning January 2000 and continuing through 2001, 4Kids Entertainment retained KCSA Worldwide to meet the following objectives: (a) to convey the Company’s long term growth strategy; (b) to rebuild management’s credibility following a significant share price decline; (c) to initiate a short selling squeeze by building positive momentum in the stock; and (d) to increase institutional ownership as a percentage of total ownership to reduce price volatility.
Audience Analysis and Research:
For maximum results, KCSA targeted several key audiences by objective, as follows:
Convey the Company’s long-term growth strategy: KCSA believes that healthy companies are defined by their long-term growth strategy. To this end, KCSA focused on conveying 4Kids long-term growth strategy to the broad investment community. This group included all institutional, retail, and individual investors as well as the broad financial and trade media.
Rebuild management’s credibility following a significant share price decline: Due to the sudden and severe price decline in the shares, KCSA targeted existing institutional and individual shareholders in order to demonstrate to them the sound foundation upon which their company was grounded. Given the difficulty in identifying this audience, in order to define it, KCSA (a) created an open line for existing shareholders to call KCSA representatives with questions about the company; (b) reviewed the Company’s recent 13-F reports; (c) reviewed the attendance rosters of past corporate events; and (d) identified reporters that had written negative or unfair articles about the Company and its management team
Initiate a short selling squeeze: In order to achieve this goal, it was necessary to identify and contact short sellers of 4Kids’ shares. This, too, is also a very difficult task. In order to determine this audience, KCSA (a) identified the most active market makers in the shares and worked with long-term shareholders to rule out potential sellers; (b) monitored company conference calls for “outspoken” antagonists; (c) interviewed existing shareholders and their trading desks to determine likely short-sellers. Another audience targeted to accomplish this objective was the sell-side analyst community that covers entertainment and leisure. These analysts could be valuable in providing a qualified third-party opinion and represent a formal, public contradiction to the often outspoken short-sellers.
Increase institutional ownership as a percentage of total ownership to reduce price volatility: KCSA targeted and identified momentum oriented investors and value investors at major institutions that would most likely be interested in the fundamentals of 4Kids Entertainment. This targeting effort focused on (a) investors that sought low share price/cash value ratios; (b) special situations; (c) low share price/enterprise value ratios; (d) price/earnings ratios less than 5x to 7x; (e) low price/EBITDA ratios. Targets were determined using KCSA proprietary databases as well as Internet based databases such as Big Dough. In addition, KCSA targeted financial reporters from major print and on-line business press that were likely to focus on price/cash evaluations and low price/earnings ratios.
Planning: An action plan comprised three phases to be implements over 18 months: (a) investor and financial analyst roadshows; (b) special corporate events that could be useful to the investor and media effort; and (c) news events that could be valuable to the investor and media effort. In addition, media relations was to take place throughout the entire program concentrating on breaking news as well as continuous pitching of the company story and business strategy.
Strategy, Execution and Tactics:
A two-pronged strategy was designed to: (a) bring in new institutional investors to squeeze out the short sellers and stabilize the company’s share price and (b) work with the financial media to get the word out regarding the true value, solid management team and excellent business model underlying the Company.
Investor outreach focused on live one-on-one meetings with new value investors attracted to the Company’s strong cash position and low overheads, thus reducing the control that short-sellers had on the shares. At the same time, KCSA actively requested meetings with known short-sellers to educate them about the real value of the company. Once momentum was established within the value investing community and short-sellers were addressed directly, the program shifted to building credibility and establishing an interest among entertainment industry analysts and investors. This was achieved by obtaining a listing for the Company on the New York Stock Exchange (from NASDAQ) and by meeting with sell-side analysts to gain support among retail stockbrokers as well as institutional investors.
At the same time, the financial media were targeted to tell the Company’s “value” story from a financial point of view and to highlight other licensed properties impacting the Company’s bottom line. Given the high profile nature of Pokemon and the overwhelming misperception that the property was fading away, KCSA was able to persuade major media that this was an important story, providing 4Kids’ management with a public forum to set the record straight.
To bring further credibility to 4Kids’ story, KCSA integrated its financial media and investor relations efforts by introducing new investors procured through the IR program to members of the financial media who spoke positively about the Company and helped to establish a valuable third party endorsement about the Company’s value.
Evaluation of Success:
Through the financial media and investor outreach, the company’s long-term growth strategy was made clear to all targeted audiences, and management’s credibility was restored. Perception of the Company by individual and institutional investors has increased, making 4Kids Entertainment highly visible in the entertainment industry. In 2000 and 2001, Fortune magazine ranked 4Kids as the #1 and #2 fastest growing company, respectively. In addition, the Company has gained licensing rights to several significant new properties as a direct result of its work with Pokemon and the heightened awareness of the Company’s business strength.
The “shorts” have been “squeezed” as their interest in the Company declined by more than three million shares. New institutional buyers have accumulated hundreds of thousands of shares, increasing the percentage of institutional investment from less than 20% to more than 33% currently. The Company’s stock price has rebounded, more than doubling from $8 to $19 per share with its P/E ratio tripling.
Article tags
Financial Communications
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