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Financial directions – FDs give verdict on EMU and City.

A new survey by Tempest Consultants shows that there is broad agreement that the euro would benefit large companies in the UK, but the three groups differ over what those benefits would be.

FDs, for example, almost all believe that sales would stay the same if the UK joined EMU, but a third of stockbrokers and more than half of fund managers believe sales would improve. (Most figures in the survey are weighted according to market capitalisation for FD respondents and the funds under management for investors.)

Likewise, FDs expect virtually no impact on profits. Even on financing costs, lower euro-denominated rates are only regarded by a quarter of FDs as leading to cheaper borrowing. But half the analysts and 60% of fund managers would expect lower debt service charges.

The huge pool of equity capital available in the eurozone, however, would be expected to result in higher company valuations, according to more than 40% of FDs. But analysts and investment managers are not so optimistic, with 18% of brokers believing that valuations would worsen. “As providers of capital and their intermediaries, fund management groups and broker analysts should be well placed to make such judgements,” says the report.

The main purpose of the research was to examine the views that the three groups – companies, analysts and fund managers – have of each other. FDs voted Goldman Sachs the best investment bank, and gave top marks to Merrill Lynch for the quality of its research. They ranked Fidelity Investments as the best fund management group. Fidelity, they said, made good use of FDs’ time, understood the company and industry, had detailed knowledge of the company’s annual report, prepared well for meetings and had good questions.

M&A activity in 2000 amounted to $593bn, 15% down on 1999 with the shortfall entirely due to a 30% slide in cross-border deals; UK-UK transactions rose 15%.

Goldman Sachs scored highest for the quality of its domestic and international M&A ideas, its financial advice and pricing of transactions, and its level of market support after transactions. UBS Warburg was rated for its research support and its underwriting.

The survey also found that some 82% of company FDs regard roadshows as the most effective means of attracting new institutional investors, alongside introductions made by brokers. FDs said that they allocate two-thirds of their investor relations communications time to dealing with existing shareholders and a quarter to potential shareholders.

FDs react badly to having “sell” recommendations attached to their shares, however. While more than 77% claim to increase communication with analysts as a result, only 60% of analysts say that actually happens.

The 2001 Reuters Survey of UK Larger Companies, Tempest Consultants,

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