Computershare Sees Hope From SEC Against Broadridge

Includes: BR, CMSQF
by: Dominic Jones

STUART CROSBY, the CEO of Australia-based Computershare Limited (OTCPK:CMSQF), the world’s biggest transfer agent business and main rival to Broadridge Financial Solutions (NYSE:BR), has praised the Securities and Exchange Commission’s concept paper on improving the US proxy system.

In a presentation to analysts on announcing his company’s full-year 2010 results, Crosby said the concept paper “does all we could have hoped.” But in a veiled reference to Broadridge and its brokerage allies, Crosby cautioned that he expected “a range of vested interests – beneficiaries of the inefficiencies and opaqueness of the current system – to oppose increased transparency and more effective communications.”

Broadridge under fire
Broadridge has built a near monopoly by contracting with brokerages and banks to send shareholder meeting materials to their clients. However, companies are required to foot the bill for the fulfillment, and they have long complained about a lack of competition to Broadridge and unclear fees.

Last month, the SEC published a “concept release” to explore ways to improve the proxy system. Among many issues, the 151-page ‘proxy plumbing’ release (PDF 673 KB) put a spotlight on Broadridge’s business practices and raised the idea of creating an a central data aggregator to give brokerage client details to service providers picked by companies themselves.

Such a system would open the door to Computershare competing for a bigger slice of the proxy fulfillment pie and potentially drive down costs for companies. Broadridge has yet to formally comment on the SEC’s release, but it faces intense pressure from various quarters, including the National Investor Relations Institute (NIRI), which is as a member of the Shareholder Communications Coalition, a group that supports creating a central data aggregator.

In his regular blog post to members this week, NIRI president & CEO Jeff Morgan urged members “to write to the SEC with their specific thoughts and opinions on [the central data aggregator], as well as any details of perceived inequities in fees.”

Increased competition and innovation
Computershare’s Crosby told investors the concept release is “very encouraging” and frames the issues in “a fair and proportionate way.” And while he expected opposition, “we will be continuing to push for improvements and we are optimistic that we will be successful.”

On the business front, however, Computershare’s outlook was decidedly more downbeat. The company warned of uncertain business conditions and predicted 5% to 10% lower earnings in the year ahead due to flat revenues and increased costs related to retaining staff.

The company’s shares dropped 11% on the Australian Securities Exchange, touching their lowest point in almost a year.

However, Crosby said that despite the revenue softness, the company would keep up its investment in technology and stay on the hunt for acquisitions.

Computershare and Broadridge are increasingly locked in intense competition for new business and product innovation. Last month, Computershare launched a virtual annual meeting product to compete with a similar service that Broadridge launched 18 months ago with Intel as the first client. Virtual annual meetings have been rapidly gaining favor with companies this year.

Meanwhile, Broadridge recently struck a multi-year deal with BNP Paribas Fund Services Australasia Pty to use Broadridge’s Global Proxy processing services for its clients -- in Computershare’s backyard.

In a news release, Broadridge described Australasia as “a strategic market for our solutions and services.”

Disclosure: None