Investor relations departments are generally not exempt from the secrecy that surrounds merger or acquisition negotiations. Few IROs are involved in the actual negotiations, and if they do participate, it is generally at a relatively late stage. But once the announcement is made that a merger or acquisition has been agreed, the investor relations departments of the companies involved must spring into action. Shareholders, journalists and other stakeholders want information and they want it fast. It falls to IROs to supply it.
Like the negotiations themselves, IROs require an adroit combination of high-tech, low-tech and no-tech tools to combat the onslaught. However, much of the behind-the-scenes M&A work is being conducted by e-mail and other new technology. It speeds up the communication process when time is really of the essence but also poses the problem of prying electronic eyes chancing upon information that isn’t yet for public consumption.
Impersonal touch
Somewhat surprisingly, Peter Knight, a partner at global law firm Baker McKenzie, reports that new technology has been warmly embraced by lawyers for M&A communication. And that’s from a group often regarded as suspicious of new technology.
Knight is comfortable with electronic revision of documentation: ‘We have a closed internal e-mail system between our 59 offices worldwide, and we mark up documents on the screen. If the client agrees, we communicate through the internet, and we can also provide a client with a gateway into our closed system.’
Don’t lawyers have a natural affinity for paper? ‘We clearly like to ensure that the different stages of the negotiations are documented,’ says Knight. ‘If we do negotiate by e-mail and mark up documents, then each time we have a hard copy printout of what has been agreed. We also insist that voicemails are transcribed, which can be cumbersome.’
In Knight’s experience, the new technology has lengthened the workday to 24 hours, accelerated the M&A process, and introduced a new level of impersonality: ‘In acquisitions I’ve acted for clients who never attended an actual meeting. It was all done by e-mail, voicemail or telephone. We’ve negotiated with the other side by e-mail and voicemail for two or three days without actually speaking to each other.’
Videoconference salvation
When the UK’s Yorkshire-based Halifax Bank was negotiating its acquisition of Birmingham Midshires Building Society, videoconferencing played an important role in the early stages. As many as 20 people from several cities had to assemble regularly; and considering that most had other pressing obligations, the logistics involved in personal meetings could have become nightmarish.
‘With videoconferencing we were able to have daily meetings that were finished by 9.30 am,’ says Carol Edge, Halifax corporate finance manager. ‘We saved tens of thousands of pounds in travel and related expenses.’ The alternative would have meant the Leeds-based Halifax contingent relocating to London for several months, which would have been expensive as well as professionally and personally disruptive.
‘We are very conscious of security,’ says Halifax IR manager Michael Warren. For the videoconferences and the various electronic transmissions, ‘Our information services department brought in firewalls, and encryption and anti-virus software. In terms of confidentiality we didn’t have to conceal or disguise the videoconferences from employees internally because they looked like ordinary meetings.’ In the latter stages, Halifax investor relations general manager Charles Wycks attended videoconference calls with lawyers and advisors: ‘I gave them my view on how our City audience would react to the acquisition to help position the external communication most appropriately,’ he says.
Personal touch
Still, even the largest M&A deals require the personal touch. Technology certainly played a part in DaimlerChrysler’s link-up last year, but so too did a good amount of face-to-face contact. According to Sam Messina, now executive director of investor relations at DaimlerChrysler in North America and formerly Chrysler’s IR director, ‘The meetings were highly confidential, and with such an extremely complex cross-border situation, I understand the vast majority of negotiations were done face-to-face.’
The actual negotiations were fairly low-tech, although high-tech devices in the form of airliners and automobiles formed part of the secrecy strategy. Meetings at the two companies’ respective headquarters in Stuttgart or Auburn Hills, Michigan would have aroused suspicions and Messina notes that some people were sent to Korean car companies and Korean cars were parked outside Chrysler’s offices as a ruse.
Once the deal was announced, the American and German IR departments were flooded with questions from investors and journalists, some of whom used e-mail. However, Lutz Deus, who was IR director of Daimler Benz and is now IR director of DaimlerChrysler, estimates that the e-mail volume was less than 10 percent of the total. Most of the inquiries came in by telephone.
That’s not to say that the IR team wasn’t immersed in technology as part of the background to the deal and for future communications. ‘We had to invent a new global share which can be traded on all major stock exchanges on both sides of the Atlantic,’ explains Deus. ‘That meant preparing a new share register because we had bearer shares and had to change to registered shares. It was a huge high-tech effort. The whole data exchange is electronic.’
Within weeks of the May announcement, Deus also came to appreciate that they had to present themselves to the market and other audiences with one face. Among other things, that consistency would require a unified web site and, in August last year, he began the three-month process of creating the new web site (www.daimlerchrysler.com). By the time the merger took effect, the site was up and running. More to the point, it was not just informative, it looked and felt authoritative.
A main ingredient on the web site is the Q&A page in the IR section, which was a collaborative effort between the two IR teams. Messina says that ‘the team had been answering questions since May. So we knew what the most likely questions were and merely committed them to paper.’ But before the words could actually be posted, both sides had to agree the wording, and this was accomplished by means of a blend of high and low technology linking the two IR departments.
‘We reviewed it here, they reviewed it there, sometimes by e-mail, sometimes by fax,’ says Messina. ‘Sometimes fax is easier because they fax you a copy and you mark it up and send it back to them, and vice versa. It is easier to find changes on a fax than on an e-mail. Sometimes it is more expeditious to take a hard copy and scratch and scribble.’
Despite the continuing need to scratch and scribble, electronic tools obviously save an enormous amount of time, money, and energy when the pressure is on to cement and announce a deal. And as we get more used to them, even their impersonality will probably start to fade.
Snail mail’s last outpost in M&A
Electronic voting on mergers by computer or by touchtone telephone has already made sharp inroads in the US. John Wilcox, chairman of Georgeson & Co, the New York-based proxy solicitors, believes this trend will continue and spread to other markets.
Currently, ‘Shareholders receive a thick proxy statement and the proxy card. Shareholders tend to vote at the last minute, the two proxy items get separated, and the shareholder doesn’t read the proxy statement.’
Georgeson has organized electronic proxy voting in which proxy and other relevant documents are available electronically: ‘Shareholders who want to know more about individual directors, for example, can simply click on the name and immediately a screen pops up with the details that appear on the proxy statement. Shareholders don’t have to turn back to another publication at the time they are filling out the proxy card,’ says Wilcox.
‘Companies have an infrastructure devoted to older systems and also an innate conservatism,’ says Wilcox. However, ‘SEC guidelines about three years ago encouraged the use of the new technology, provided shareholders’ consent to send documents electronically is first obtained.’
M&A activity is part of a comprehensive review by the SEC, which has made a special effort to avoid excessive regulation and encourage development of the use of new electronic technology.
