Anyone who ever tried to order from a menu in a four-star Paris restaurant or whose fan belt gave out on the steep roads outside Mexico City might sympathize with the investor relations director whose firm just merged with an overseas company.
Dealing with foreign entities thousands of miles away can intimidate even the most battle-hardened and savvy IRO. Imagine being peppered with questions on currency fluctuations by a tough analyst speaking Cantonese. Or picture your superbly-coordinated video-conference meeting disintegrating when your counterpart in Stockholm tells you the Swedish office won’t be taking part because it’s July and everyone’s on holiday for a month.
Surviving a cross-border merger, though, is a challenge more and more IROs are being asked to tackle head-on in the merger-happy 1990s. According to the international accounting firm KPMG Peat Marwick, companies worldwide announced $130 bn in cross-border deals through the first six months of 1997, compared to $119 bn in the first half of 1996. Overall, the global merger market was pegged at a record $284 bn in 1996. It’s a record that will soon be broken again, industry observers say.
‘Globalization is no longer rhetoric. It’s a fact,’ says Douglas Gregory, senior advisor at IBM Canada. ‘And it should continue at a rapid pace.’ US companies are fueling global merger mania, mostly because of the massive war chests generated by the roaring US stock market. According to KPMG, US companies announced $28.1 bn in merger deals during the first half of 1997, up 12 percent from a year ago. Conversely, foreign firms’ investments in American companies were off 25 percent because of their high price tags.
The list of cross-border mergers reads like a Who’s-Who of international high-profile companies: British Telecommunications and MCI ($20 bn); Invesco PLC and AIM Management Group ($1.6 bn); and Dutch bank ABN-Amro and Michigan-based Standard Federal Bancorporation ($1.9 bn). The annual output of foreign subsidiaries alone accounts for $6 trillion annually – or about 20 percent of the world’s entire economic revenue generation.
It’s often difficult for vastly different, often hidebound companies to assimilate, both in a cultural and logistical sense. For US companies, in particular, going foreign is an eye-opener. ‘Global business does make sense, but it’s much easier to talk about it than to do it,’ says Paul Flask, managing partner at Korn/Ferry International. ‘American managers pride themselves on directness, frankness and being held accountable. That’s almost unique in the business word.’
Not surprisingly, IR programs, no matter in which country they reside, handle cross-border mergers in different fashions. Most fall into two camps: one operating with the whole inside scoop and one operating without. Whether the management of an IR campaign during a cross-border merger is successful or not may be determined by which segment the IRO is slotted into.
‘Traditionally, there are two types of company managers: those who trust the IR department and those who don’t. Those companies who are very open with their IR people and who make them an inside part of the team in handling a merger will seek an IRO’s advice on how to sell the deal to the investment community,’ comments Johnnie Johnson, principal at New York-based Johnnie D Johnson & Co, an investor relations firm.
‘Considering that the investor relations director is the one dealing with the investment community on a daily basis, that’s a wise course of action,’ Johnson adds. For IROs who don’t enjoy the luxury of full disclosure by top management, he advocates that the IR professional wage a campaign to be fully included in the merger planning.
The best way to accomplish that is to prove IR’s viability as a conduit of information to and from the investment community. ‘Fund managers and analysts pass along vital information to IROs on a regular basis. If, for example, an analyst who covers the Pacific Rim offers you their expertise on your company’s chances of succeeding in the Asian markets, or who had been pushing your company as a takeover target prior to being acquired, that’s a source of information well worth tapping into.’
To Do List
At the top of any IRO’s ‘to do’ list upon notification of a merger with a foreign firm is acknowledging the merger’s existence – the sooner the better. ‘You have to eliminate the confusion and you have to do that right away,’ says Tony Schor, president of Investor Awareness, a Deerfield, Illinois-based IR firm. ‘So you want to immediately let the investment community know there is a deal in play.’ And according to Schor, that means adhering to local business customs and practices.
Painting a favorable portrait of the merger is the goal of any external communications issued to the investment community, says Schor. ‘The merger should be treated as a positive development. Emphasize the global opportunities for shareholders presented by the deal and how the deal opens up new revenue streams for the companies and more buyers of the company’s stock. Shareholders like the cachet associated with being part of an international company.’
Like any business venture, luck plays a primary role. If, as in the case of many domestic and international mergers, the stock price rises, that will likely diffuse any bad investor sentiment against the deal and keep the phones from ringing off the hook.
That’s what happened to Standard Federal Bancorporation’s Bill Yaw, a marketing director for the Troy, Michigan-based bank, when it was purchased by ABN-Amro: ‘Our shareholders received $59 per share which was a nice profit when you consider the stock opened at $8 when it was first issued in the early 1980s. Since most made out nicely, we didn’t have to handle a lot of phone calls.’
On the other hand, the bank is still wrestling with the infrastructure differences between the two companies. Converting proprietary computers so they can communicate with one another and merging records can slow the process down and delay the official launch of the newly combined global company. ‘There’s so much to work out in such a large merger with two companies from different countries,’ he adds. ‘What we emphasized from an investor relations standpoint was that, despite the combination of the two banks, nothing dramatically changed with Standard Federal. We are still offering the same products and we don’t anticipate many changes from a customer standpoint. Investors like stability and you want to give them that.’
Tales of Woe
Cultural differences also play a great part in the IRO’s role in helping merged companies assimilate. Tales of woe surrounding the $6 bn merger of two pharmaceutical giants – Pharmacia of Sweden and Kalamazoo, Michigan-based Upjohn in 1995 – are still rippling boardrooms worldwide.
A recent Wall Street Journal article cited cases of Pharmacia executives bristling at the high number of reports they were expected to submit. Upjohn execs, on the other hand, couldn’t understand why their European counterparts took such long vacations and refused to submit to industry-standardized drug tests. Such cultural differences have led to product delays and the resignation of key executives (neither company agreed to be interviewed for this article).
‘Culture is a big issue in cross-border mergers,’ says Schor. ‘Schedules need to be worked out, especially in the summer when Europeans are away longer on holidays. IROs should also bone up on the native language of their new colleagues, both as a sign of respect and as a means of establishing better lines of communication. When we assisted a Malaysian client with one of its US acquisitions, I found that learning even a few of their words was very helpful. They took it as a sign that I was well-prepared and that I respected their culture.’
It also helps to research cultural taboos and mores, like greetings, handshakes, and how to act at dinners and other social events. ‘It all proves very handy,’ Schor says.
Culture has a business side to it, too. Fledgling analysts and fund managers at Harvard or Wharton are trained differently from their counterparts at Oxford or Manchester University. ‘European fund managers are more apt to be activists for the stocks they’ve purchased,’ says Johnson. ‘They think nothing of getting together with two or three other fund managers who purchased the same company’s stock and scheduling a meeting with the CEO to address prickly issues. American fund managers are much more hands off. Dealing with a new set of analysts, shareholders, and fund managers is a big part of an IRO’s job in a newly-merged global company.’
In an ever-expanding global marketplace where deregulation is the order of the day, it’s not surprising to see British Telecom and MCI or Zurich Kemper and Scudder Investments tie the knot.
In fact, the term ‘global markets’ has been a handy catchphrase for IROs at cocktail parties and business luncheons for much of the 1990s. But with about $300 bn worth of mergers under the world’s economic belt and multi-billions more to come (Securities Data Corp estimates over $700 bn in 1997 alone), it’s time to consider what a cross-border merger actually means to the investor relations professional.
Perhaps the best advice for IROs is short and sweet: learn how to handle it before it handles you.
