TAKING STOCK: Call It Whatever But An Apple's An Apple
1310 words
9 January 2008
16:48
Dow Jones News Service
DJ
English
(c) 2008 Dow Jones & Company, Inc.

 
   By Palash R. Ghosh 
   A Dow Jones Newswires Column 
    

NEW YORK (Dow Jones)--Go ahead and change the company's name; just don't expect to cash in on it.

Thousands of U.S. companies change their names each year, but studies show it has minimal impact on their stock prices. The notable exception to this was in the late 1990s when the dot.com hysteria drove hundreds of small companies to adopt an Internet-related name -- leading to phenomenal short-term spikes in their share prices. Otherwise, name changes haven't meant a whole lot.

Companies change their names for a host of reasons: a change in business model or new strategy, loss of a licensing pact, or the result of a merger.

"A name change should not have any effect on the value of a stock, because it does not alter the fundamental cash flows of the underlying company," said Raghavendra Rau, associate professor of finance at Purdue University, who has studied corporate name changes. "If a man changed his name to Matt Damon, it's unlikely that would suddenly make him more attractive to women."

A name change is seen as a signal that a company is about to undergo some kind of transformation, but it's not viewed as a stand-alone nor inherently unique event, said Chiranjeev Kohli, professor of marketing at California State University-Fullerton.

Still, a company's name is one of the most important facets of its marketing, advertising and identity. Corporations will spend millions to change it, suggesting that a new name is far more than just a cosmetic device.

"Most companies are aware of the strategic importance of their names," Kohli said. "The name must appeal to the financial markets, including traders, brokers, and investors, as well as to employees and customers. The name is a kind of succinct and perpetual form of advertising."

The costs of changing a company's name may involve advertising expenditures and regulatory and legal fees, among other things. For example, Esso's switch to Exxon in the early 1970s is estimated to have cost about $200 million according to a 1984 study by Walter McQuade in Fortune Magazine.

One of the most successful corporate brand names belongs to Steve Jobs' Apple (AAPL) empire, which dropped "Computer" from its name last January, to reflect the company's expansion into areas outside of personal computers, including mobile phones and entertainment.

Apparently, shareholders liked the change.

Since Jan. 7, 2007 (the effective date of the name change from Apple Computer to Apple Inc.) shares have skyrocketed 128% through Jan. 3, 2008. New name aside, however, that stupendous performance likely had more to do with the pervasive global popularity of iPhones and iPods.

Sometimes name changes are a necessity because the old moniker becomes a liability.

For example, Phillip Morris changed the name of its holding company structure to Altria Group Inc. (MO) to shift focus away from its negative association with cigarette smoking. However, when the plan was first announced in mid-November 2001, the stock price barely responded.

When Andersen Consulting changed its name to Accenture Ltd. (ACN) in the early 2000s (reportedly at a cost of more than $100 million), the move was widely criticized. However, it was a lucky break since the "Andersen" name became associated with the Enron accounting scandal, although it was a different "Andersen" that was involved.

Despite research indicating a lack of stock price reaction to name changes, there was at least one period when changing a company's name had a dramatic upward push on stock prices: the dot.com euphoria of the late 1990s.

"When very small OTC-type companies added a 'dot.com' to their names, or somehow signified they were now 'internet' stocks, we sometimes saw gigantic spikes in their share prices -- as much as 20%, 30% or even 40% in a few days," Rau said. "Since these were largely unknown micro- and small-cap stocks with limited investor attention, people didn't research these companies to figure out what exactly they did. They just acquired shares as part of a program to simply buy a portfolio of stocks which were screened as 'dot.com' names, without any regard to the companies' actual business or future prospects."

For example, Alternative Entertainment changed its name to Boystoys.com (GRLZ), a company that ran "exotic" nightclubs and restaurants (it filed for bankruptcy in 2002).Gourmet potato chip maker RLD Enterprises metamorphosed into Go-Rachels.com. At the time, Go-Rachels had little to do with the internet and didn't even have a Web site.

Rau estimates that these "overnight dot.com" stocks rose 18% on average the first day after a name change. "We found that companies which had no internet business at all (despite their names) witnessed an average 30% jump in one day," he added.

After the dot.com party petered out, many of these same companies quickly shed their internet trappings. "The same companies that added the 'dot.com' got rid of that suffix and saw another burst in price," Rau said.

For example, in 2001, internet.com became the more staid-sounding INT Media Group, while attorneys.com Inc. remade itself as 1-800-ATTORNEY Inc. (ATTY).

While nothing is likely to ever match the dot.com craze of the last decade, there now appear to be two ongoing trends in the name-changing business. Responding to the rising chorus of environmental consciousness, many firms have re-branded themselves as "green" companies. For example, Radiant Technology became GreenBridge Technology Inc. (GBTG); KFx Inc. changed its name to Evergreen Energy Inc. (EEE); while Diversified Multimedia turned into Bamboo Technology.

Another trend lies with increased prominence of the Far East and China; some companies are explicitly aligning themselves with Asia.

For example, Permission Marketing Solutions changed its name to Pacific Asia China Energy Inc. (PCEEF); Goldtech Mining Corp. became China Industrial Waste Management Inc. (CIWT); and Diversified Financial Resources Corp. turned into, of all things, China Fruits Corp.(CHFR).

In fact, some name changes reflect both a new focus on Asia and a commitment to being greener, For example, Hurley Exploration changed to China Clean Energy Inc. (CCGY) in October 2006.

However, the impact on underlying shares of these various stocks has been decidedly mixed.

"I expect more of a price impact on companies identifying themselves with China because the Chinese economic growth story is so strong," Rau noted. "I don't see much of a price premium in 'green' names. If you want to change your name, it should be into something that is hot -- and China is extremely hot."

(Palash R. Ghosh has been writing about U.S. and international equity and bond markets for the past 16 years.)

-By Palash R. Ghosh, Dow Jones Newswires, 201-938-2367; palash.ghosh@dowjones.com

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Corrected January 9, 2008 15:42 ET (2042GMT) [ 01-09-08 1148ET ]

When Andersen Consulting changed its name to Accenture Ltd. (ACN) in the early 2000s (reportedly at a cost of more than $100 million), the move was widely criticized. However, it was a lucky break since the "Andersen" name became associated with the Enron accounting scandal, although it was a different "Andersen" that was involved.

(An item at 11:48 a.m. EST incorrectly said Andersen Consulting was an accounting firm. Andersen Consulting, now Accenture, is a consulting firm.) [ 01-09-08 1540ET ]

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