This was a big deal. On August 11, 1999 Alcan of Canada, Pechiney of France and the Swiss Algroup announced that they were proposing to merge to form the world’s largest aluminum group. The result would be a single trading company with combined sales of over US$21 bn and a market cap of around $19 bn. The temporary name of the group would be Alcan-Pechiney-Algroup (APA) and, as it was stressed throughout, this was to be a merger of equals.
As part of that commitment to equality, the deal was announced from London which had the advantage of being neutral territory to all parties in the merger. Alan Brown, director of investor relations for Alcan, says the IR work started well before the London announcement. ‘We started as a communications group three or four weeks before, working on a general and financial communications plan. That was extremely valuable. All three communications specialists from the three companies started to speak together at a very early stage.’ They had also involved a team of outside advisors: Financial Dynamics in London, Sard Verbinen in New York and Optimum in Montreal.
All together now?
The structure of the deal means that Alcan will be the continuing company, rather throwing into question the ‘merger of equals’ story. ‘From a technical point of view it is Alcan that is offering shares in exchange for those of Pechiney and Algroup,’ explains Brown. ‘But this does not alter the fact that it is a merger of equals. It is a premium-free transaction. The board is structured with equal representation from the three companies and the senior management is entirely objective. If Alcan had set out to acquire the other companies we would not have a deal today.’
With shareholders split between Europe and North America, and several different audiences – suppliers, customers and employees as well as investors – there were always going to be requirements for a high level of coordination and widescale communications. Francois-Jose Bordonado, head of IR at Pechiney, is responsible for coordination and leadership of the APA communication team. ‘We will have to look after a shareholder base which is roughly 50 percent North American and 50 percent European. Creating something with this equilibrium in shareholding is really uncommon. This is the first challenge. The second is that we have to explain this new company. We need very proactive communications as far as IR is concerned.’
Pechiney and Algroup’s key institutional markets are London, Paris, Zurich, Amsterdam, Edinburgh, Madrid and Milan. They also have private investors in Switzerland and France. ‘We have to explain the Alcan part of the deal,’ says Bordonado, ‘because these people already know Pechiney and Algroup.’
The reverse is true on the other side of the Atlantic where Alcan shareholders, principally in New York and Toronto but also in the other North American markets, need to be acquainted with the two European companies.
‘Normally,’ explains Anton Nicholas, senior associate at Sard Verbinen, ‘when you have two companies from the same country, you know the markets and what people within those markets are going to be looking. So you can represent your client companies in a focused manner. In this case, with the size of the deal and the three countries involved, the whole thing really needed pulling together. The interesting thing about being involved in a big, three-way deal like this is that there are so many moving parts. You just have to have a really well thought-out strategy and an internal team that is good at communicating. And that,’ claims Nicholas, ‘is what this deal had.’
Bordonado is very focused about how the deal has been managed. ‘We have conference calls and regular weekly status reports of the all the projects we are involved in. There is a delivery date, a person in charge and, when it is delivered, an assessment of the delivered product. It is very industrial. We are not just talking, it is really delivering products.’ It is this rigorous structure and approach that have enabled all involved to work together in well-coordinated and effective way.
‘We have worked very closely,’ says Michel Gerber of Algroup in Zurich. ‘What kind of information can be released at what time and so on. It has also been very helpful to have outside advisors like Financial Dynamics.’ In particular, Gerber says that having help with some of the logistics such as preparing and running presentations is extremely useful. ‘Having an agency in each of the countries is a real help to us. Our experience has been that everyone in the outside agencies worked very well as a team with the internal people.’
Swiss sweetener
As a consequence of the merger, Algroup found that it received quite a number of inquiries from US investors who wanted to learn more about the company. ‘We have set up a web site [www.algroup.ch] where we can point investors so that they can download our annual report and investor handbook directly without wasting time,’ says Gerber.
Algroup meanwhile had to deal with the complication of demerging its SFr2.2 bn sales Lonza chemicals and energy subsidiary which was a prerequisite of the APA deal. Again Michel Gerber has set up a web site [www.lonza.com] to provide information to investors. Lonza was successfully floated on the Swiss exchange on November 1. The web also helped with the merger itself and Alcan’s site [www.alcan.com] includes a detailed and easily accessible merger section. In an international operation of this sort, the benefits of the web are easy to see.
But, as often happens with global consolidation deals, the merger is still some way from completion. The antitrust authorities in the US and European Union are both into the second stage of their deliberations. ‘The deal will probably not close until some time in early 2000,’ explains Financial Dynamic’s Nic Bennett. ‘It is a long, drawn-out process. The new company will be legally headquartered in Montreal, the CEO’s office and main listing will be in New York. There will be other listings in Europe, probably Zurich, Paris and London.’
Keeping the momentum going will require a great deal of effort but there have already been a series of major milestones. One such was the Lonza flotation, a consultation process involving Pechiney’s workers council, Alcan’s shareholders meeting and the announcement of APA’s new structure and management team. There will be further roadshow activity in the new year when the exchange offers are launched to encourage Pechiney and Algroup shareholders to tender their shares.
In terms of investor relations challenges Alcan’s Alan Brown sees ‘flowback’ as one which will need careful management. ‘There will be some investors who for various reasons – such as their investment criteria – will not become holders of APA. A number of shares will flow back to North America. We have to be sure there is demand for the stock and that they will absorb the shares. We have to encourage shareholders to hold APA in the US but also build additional demand in Europe as well as minimizing the flowback there.’
He says, however, that things are going remarkably well. ‘I haven’t had a negative reaction from a shareholder yet – and we’ve seen a lot of them. The analyst community has been quick to recognize the strong industrial logic to the deal. Most of the questions we get are to do with execution, antitrust and post merger integration. That is what investors are most interested in and concerned about.’
Given that there were not only three companies involved but also three nationalities, investors were bound to raise issues of whether company and national cultures could be welded together successfully.
Nic Bennett points out that all three APA companies are firms with global reach and with a similar attitude to shareholder value, using EVA (Economic Value Added) models or derivatives as their benchmark. At the same time, looking at the main customers of the major aluminum suppliers, such as the auto industry and canning and packaging sectors, it is plain to see that consolidation and globalization are features which suppliers have to be able to live with as cost savings are forced back down the supply chain.
The commercial rationale is convincing, with little overlap among the three. APA says that the achievement of a successful merger can realize $600 mn ‘annual cost synergies’ within two years. Pechiney’s Bordonado adds, ‘Business is our culture. We don’t have any difference of view within the three companies.’
Meanwhile he says, ‘We are still competitor companies. We still have the day-to-day business to run.’ There will be long nights at the office for several weeks yet as IR staff from all three companies juggle this with being merger partners in an unprecedented deal.
And lack of precedent is a consideration too. ‘It is difficult to benchmark,’ says Bordonado, ‘There has been no previous example of three major players from two continents but in the same industry forming a new listed company.’ Even the final name of the new group still has to be decided. There are plenty of challenges ahead for the entire APA IR team who are at the sharp end of the deal ensuring that shareholders stay with them through the long and demanding process of making it all work.
