As any war veteran will tell you, the heat of battle can be a confusing, messy affair, where best laid plans lie in tatters and one small change in fortunes can lead to full retreat. Bid wars and proxy fights can, figuratively speaking at least, be much the same – bloody, muddy and high in casualties. They too demand clarity of thought and a commander’s iron will if there is to be triumph in the face of a hostile bid.
There have been numerous scenarios in recent years where a counter bid or an unexpected approach late in the day has triggered intensive shareholder communications. All too often, the end result of all the effort is defeat in the face of superior odds.
Win or lose, where is the investor relations manager in all of this? Leading the charge or skulking in the trenches waiting for orders?
Some observers would have it that the IRO merely acts as messenger for those decisions made by the senior team and their investment bankers. Others would point to instances where the IRO is not only executing the commander-in-chief’s battle plans and strategy but devising them too. In today’s M&A war zone, IR is more critical than ever.
At the ready
Dean Dranias, president of corporate services at Dresner in Chicago, has witnessed many bid battles and believes that IR managers usually take the view that the company must act in the best interests of its stockholders. This means that, if the management decides to do a U-turn and go with company B rather than company A, the IR function has to be ready to make a valid case for that.
‘If a company has two offers on the table – both of them diverse but not necessarily antagonistic – then it’s the company’s investment banker who will play the key role. Investor relations becomes a secondary factor. It’s the investment banking firm that the company spends millions of dollars hiring to tell it which is the best way to go. After that, the investor relations manager or consultant can come in and create the rationale for the decision,’ says Dranias. ‘It’s not so much what the investor relations manager can do, it’s what his senior managers intend. If they’re caught between a rock and a hard place and know that one or other of the bids has to be acceptable, the investor relations manager’s job is to convince shareholders to follow this management decision.’
However, Dranias adds that for someone from an investment banking background or someone armed with the relevant investment banker’s acumen, there could be a bigger, more decisive role in the process for the investor relations expert.
John Cornwell, executive vice president at IR consultant DF King in New York, agrees that when there’s a bid to take over another company, the decision is an economic one led by advice from the investment bankers. But he asserts: ‘Even though the financial arguments emanate from bankers and the chief financial officer, you can’t actually present these to shareholders unless you know who to present them to. That is knowledge only held by the IR manager.’ Cornwell adds that if the investor relations officer contacts investors with either good or bad news, the effort to keep them informed means they are comfortable knowing that there’s someone looking after their investment and they know who to call if they think there’s a problem. It also helps to add credibility to the message.’
Added weight
Dranias’s comments clearly gain credence in the light of recent events at Ogden Corporation. In this case, the IR manager had the role of influential adjutant beside his commander-in-chief.
The Ogden battle kicked off when Providence instigated a proxy fight to break up the aviation, entertainment and energy conglomerate. As corporate development and investor relations director Quintin Marshall explains, his senior position within the hierarchy helped raise the importance of IR during the battle for shareholder loyalty. Smoke from the aggressor’s cannonade only cleared in late May after shareholders voted to reject the Providence proposals.
Providence had questioned the company’s current performance and said it wanted to help create more shareholder value by breaking up the company and making changes to the board.
Ogden’s management did not want to keep talking about the issue and told Providence that they were going to consult shareholders. At the annual meeting the proposals were beaten off by a ratio of nine votes to one. During these events Marshall says he had an instrumental role to play, because of his dual responsibilities as both corporate development director and IRO. This, he says, gives him a much bigger club to wield when talking to his senior colleagues.
Openness and accessibility to key shareholders was important, as always. Around 70 percent of Ogden’s stock is held by institutions, but Marshall was able to reach all of the key investors with no more than ten phone calls.
‘It could have gone either way, but due to flaws in their strategy in terms of the poor perception of our shareholder base I was highly confident,’ comments Marshall. ‘That’s not to say we took the shareholders for granted. We didn’t. We went to the shareholders and said, Look, this is what we’re doing. Do you back us? During the fight I was very open, very accessible and very direct. But one of the keys to it was that I knew my shareholders. There was no way I could have picked up the phone and said to a relative stranger, Oh hello, we haven’t spoken for a while, but can I have your vote?’
In fact he believes the seeds of success were sown two years ago. Since then the company has avoided giving its shareholders any ‘nasty surprises’. The successful defense was also underpinned by the fact that Ogden’s stock had done well over that period. Marshall doesn’t believe that strong relationships with shareholders would have mattered a great deal if this had not been the case.
Up until ten days before the shareholder meeting, Marshall was mainly holding conference calls with investors. During the final count down he, the chief executive and the chief finance officer went to meet the top ten investors, face to face.
Award winning war vet
A veteran of the ‘ITT wars’, Anne Tarbell was on the frontlines as ITT’s IR director during the biggest proxy battle of 1997. ITT fought long and hard to fend off Hilton’s hostile bid before emerging triumphant from a proxy vote to embrace Starwood’s friendly offer. Tarbell, now VP of corporate communications and IR at Triarc Companies, is living proof of how much involvement the IR function has in such situations. Indeed, she too emerged triumphant; for her role at ITT during the proxy fight, she won the 1998 Investor Relations Magazine US Award for best IR in a contested takeover.
‘If the IR program is taken seriously, the IRO is viewed as the conduit to the shareholders,’ she explains. ‘You have to be very good at feeding back what people are telling you, from the perspectives of both management and shareholders. You have to be able to present credible arguments why shareholders should support a bid, matching them point by point.’
ITT’s success depended on shareholder approval. ‘So the conversations I had on a daily basis were important in gauging what shareholders were thinking.’ In turn, Tarbell found herself in the ‘inner circle’, speaking daily with the CFO about strategies for convincing shareholders to stay the course, and speaking frequently with the president and CEO. She also communicated with members of the board in writing and by phone, and she was present at board meetings throughout the battle, listening to deliberations and offering her point of view.
Indeed, success for an IRO depends on gaining respect among senior managers – something that only time-in-post and experience of previous battles can bring. The IRO knows what people want to know; knows what their concerns are; knows when big shareholders came into the stock; and knows, therefore, whether or not they are more likely to sell; and so on.
Now, at Triarc, Tarbell is handling another major transaction: a management buy-out proposal. If passed by a special board committee, her job will be to provide shareholders with the analytical framework, explain it, answer their questions, and then work closely with them as well as management on a proxy vote.
Still, there’s only so much that IR people can do in the heat of battle. The IR role is to act as the eyes and ears of the generals but when the opposition has more ammunition, there’s little anyone can do to persuade doubting investors to stay on side.
Indeed, Marc Grossman, Hilton’s senior vice president of corporate communications, shoots back: ‘The idea that ITT was able to win because of its investor relations program is lunacy.’ He contends that ITT never actually won anything: ‘ITT was a goner anyway,’ Grossman insists. ‘They lost the company. Their objective was to remain independent, and now they don’t exist.’
Emerging story
When BMW bid for Rolls-Royce’s car division, which Vickers had decided to dispose of, it expected to see rival bids emerge. Volkswagen’s counter bid, which led successfully to VW’s acquisition of the company (although not of the famous Rolls-Royce name), did not initiate any special IR action from BMW’s Munich headquarters.
‘We had one-on-ones with analysts and investors, explaining what the group and its subsidiaries are doing for development of the business units,’ reports Jorg Peters, BMW’s investor relations manager. ‘So this was exactly the same, there was no change. In terms of the secret and sensitive negotiations surrounding the rival bids we just said to shareholders at the one-on-one meetings that there was something in the air, something which we could not openly discuss with them,’ he says.
While the role and remit of the IR function may not have changed for a lot of this normal investor communication activity, Peters believes that there was much they could offer in addition – such as their particular knowledge of which shareholders needed targeting at the time of the VW rival bid. Such knowledge can only be gleaned through experience on the job.
‘I was able to indicate how shareholders were likely to think, their orientation and, when a direct response was needed, I could arrange it behind the scenes because that was all part of my normal job,’ he says. Peters sees the two-way communication flow between the market and senior managers as key at this time. Ensuring both sides are kept up to date is a crucial element of the IR role. The time dedicated to the task pays dividends when something like the VW rival bid occurs: the senior team knows who to speak with first.
One thing which made it relatively easy for BMW’s IR department was the decision not to increase the company’s offer for Rolls-Royce’s car manufacturing division. This meant, of course, less uncertainty about changed investor messages. Still, while VW won the battle, it’s debatable whether it won the war. BMW remains licensed to manufacture the cars under the Rolls-Royce banner for the next few years, while VW can only use the Bentley badge.
Switching sides
Often, for the aggressor, the IR role is just as difficult for the company that has been acquired, or for those faced with a counter bid.
For IR vice president at MCI WorldCom, Gary Brandt, there was a lengthy war of attrition demanding consistent shareholder messages when his company, WorldCom, countered BT’s bid for MCI. His view is that standard practice was the order of the day.
‘MCI had spent a lot of time convincing institutional shareholders that BT was the right relationship,’ Brandt recalls. ‘For us to step in between to persuade them otherwise, there was clearly a time when people were saying, Well how can it be both?’
Brandt says his function works closely with shareholders in situations like the bid for MCI. Above all it’s important to ensure the investors can see a clear path that’s consistent with previous strategy.
While the senior managers were scheduled to meet investors, it was also Brandt’s responsibility to do some of these alone, in which case his role was not solely that of messenger. And there needed to be close liaison with his media relations colleagues, because of the influential role the media played in shaping perceptions.
‘Even when I may have confirmed certain points of information with investors, there were press articles which again posed questions in their minds. At which point they would ring me and ask me to verify the information I had given,’ Brandt recalls.
His testimony confirms the IRO’s pivotal role as communicator during bid activity. Still, whether the IR role is right up there next to the commander-in-chief or not depends very much on the organization, the circumstances surrounding a bid, and the caliber or pedigree of the IR manager.
Indeed, many investor relations officers could yet find themselves relegated to the role of scout and messenger until after the dust has settled.
