Financial advertising, like IR, is about top-quality communication. It’s about catching the eye of the investment community and really selling your story.
But not in all cases. There’s one scenario where advertising has to be restricted to a blank bleating of the facts, to adverts infused with about as much personality as a sedated accountant with a stamp-collecting fetish. Essentially, if you’re a UK company involved in a domestic takeover, consider yourself gagged – because, in that circumstance, financial advertising is about doling out the facts. It’s about providing bland, turgid prose, utterly devoid of argument or persuasion. And some people don’t like that.
But the UK’s Panel on Takeovers and Mergers, the body responsible for the rules, shows no sign of budging. Rule 19.4 stipulates, ‘The use of financial advertisements connected with an offer is prohibited’, but adds nine exclusion clauses. For example, product or corporate image ads with no bearing on an offer are permitted, as are ads confined to non-controversial information about an offer. (Although, ‘Such advertisements must avoid argument or invective,’ the panel adds).
We know best
‘It was simply felt that there were more appropriate means of communicating with shareholders,’ says a spokesman for the panel.
‘Ads that feature the offer’s timetable, say, or a telephone number are acceptable,’ says Bill MacLeod, financial advertising sales manager at the Financial Times. ‘But anything that refers specifically to the bid needs to be approved by the panel. And they’re pretty tight.’
But why? ‘The rules were really designed to protect target companies, because, of course, that’s when they’re at their most vulnerable,’ adds MacLeod. ‘It’s also a way of ensuring that information is kept in the public domain.’
If nothing else, the UK is being denied a decent show. During the great bid battles of the early 1980s, contested takeovers were a public spectacle, fought with deafening claim and counter-claim.
The party came to an end in 1986 when the Takeover Panel banned bid advertising, saying that standards of accuracy had been undermined by the use of knocking copy and selective statistics. ‘There was a tendency to short circuit information,’ says the spokesman.
MacLeod agrees that, ‘A few years ago, the content became very personal in nature and very aggressive in tone.’
The panel maintains that financial advertisers were employing shoddy statistics to mislead the audience. ‘It came to a head during the fight between Guinness and Argyll to take over Distillers,’ says the spokesman. ‘Argyll was suggesting that sales of Guinness in Germany were pretty flat, while Guinness was saying that they were steep. Neither side was lying – it just depended on whether their calculations included bottles and cans.’
Drastic measure
Hang on, though. Does that really call for an outright ban? It seems as if the Panel has made a bee-line for Last Resort. And now some quarters of the UK’s investor relations community are starting to make noises, railing against what they see as a Draconian infringement of free speech. One industry participant, a Mr Smith (not his real name – he asked not to be identified) is quite frank about the current state of affairs. ‘It’s a very, very odd situation,’ he remarks. ‘Basically, if you’re involved in a takeover dispute, you aren’t able to defend yourself adequately – it’s so tightly regulated.’
But surely the rules are just a necessary evil, brought on by the excesses of the 1980s? ‘The Panel has taken its jurisdiction to the nth degree,’ asserts Smith. ‘In the 1980s, there were ads that were generous with the facts, that gave more opinion. I totally agree that you shouldn’t mislead people. But you can’t regulate free speech. They are denying the right of companies to educate their shareholders.’
Moreover, as a professional routinely up against the provisions, Smith is aggrieved that he doesn’t know where he stands. ‘They’re so vague,’ he complains. ‘You produce an ad which the FT thinks is okay but the panel reject it. They say, You can’t say that – it’s clever copywriting isn’t it? And you think, Well, yeah… that’s what we do…’
That can frustrate. ‘I remember one company that resubmitted a dozen bits of copy for approval,’ recalls MacLeod. ‘All of them were turned down. The chief executive really wasn’t happy.’
What is more alarming is the suggestion that the rules contain inconsistency, and are therefore unfair. ‘Put it this way,’ smirks Smith. ‘A company is only allowed to give non-controversial information in an advert. But if a director is interviewed, he can say whatever he likes. So you could feasibly have a situation where the interview could be placed right next to one of your adverts. It’s ridiculous – it seems that an officer of the company is allowed to express his opinion in print, but he can’t pay for it.’
And there are other areas that need redress, Smith considers. The panel’s strictures apply only where the target is a listed company – not where it is just the division, as with the lively brawl between Punch Taverns and Whitbread for Allied Domecq’s pub estate last year. ‘So, because it’s a subsidiary of a PLC, they can do what they want?’ exclaims Smith. ‘Why?’
That’s a view shared by Roger Tyson, of Georgeson Shareholder Communications in London. ‘The deal was exempt because it didn’t involve the take over of shares, but obviously, the sale of a division is likely to have some effect on the share price.’
‘That’s a fair point,’ remarks MacLeod. ‘The rules are very anomalous.’ Equally, the panel’s ban extends only to bids for UK companies. So, as other European countries encounter their first hostile takeovers, they are also discovering bid advertising – with some of it spilling over to cover the UK.
In the case of Vodafone’s bid for Mannesmann, more than half of Mannesmann’s shares were held outside Germany, so bidder and target were using British and international newspapers to reach key investors.
Because these are mainly institutional investors, the advertising was informative rather than emotive. But in Germany, where the target audience was Mannesmann’s private shareholders, the advertisements were every bit as colorful as those once seen in Britain – sometimes more so.
Hitting an emotional note from the start, Mannesmann used the image of a newborn baby to signal the growth potential of its portfolio of telecoms businesses. Vodafone countered with a picture of a breast-feeding mother with the caption: ‘Everyone knows that if you want to grow big, you need a good mother.’ Mannesmann hit back with: ‘A hostile mother would be the worst thing.’
There’s little doubt that the sight of a naked breast in the pages of Handelsblatt, the German business daily, was for the benefit of retail investors, plagued as they are by the odd emotional response. But what’s wrong with that? ‘Retail shareholders don’t like bland legalese,’ says Tyson. ‘They want to see attractive ads. These rules can be over-protective toward them. The provisions were well-intentioned but I’m not sure they help retail investors decide – the suggestion that they go and see their independent financial advisor fails to recognize that many retail investors don’t have one.’
But isn’t the panel right to protect retail investors from the trickery of advertisers? Perhaps. But not necessarily:’Look at the Punch Taverns ads,’ says Tyson. ‘Everyone enjoyed them. The financial advisers on both sides controlled the content well. If shareholders had any questions they were able to call the help-lines included in the ads.’
What a turn off
Tyson feels that such bland advertising leads to more worrying repercussions. ‘Shareholders won’t notice box adverts with small print produced by lawyers. And if they won’t look at it, they may not vote. The Mannesmann adverts were very striking. If nothing else, they drew shareholders’ attention to the matters in hand.’
But not all retail shareholders are sucked in – especially when companies spend vast sums of money on photos of naked breasts. In Germany the backlash seems to be happening already.
The German Association for the Protection of Minority Shareholders (SdK) has criticized the advertising campaigns of Mannesmann and Vodafone. The deputy chairman of the SdK, Anneliese Hieke, says that minority shareholders were angry at the amount of money both companies wasted on the campaigns and that they would not allow themselves to be influenced by them. Hieke also criticizes both sides for not providing minority shareholders with the same information as funds and banks.
But the SdK has no jurisdiction, whereas ‘the UK has much more stringent rules than any other country I know,’ says MacLeod. ‘Why should we have rules that are so much stricter than the rest of the Continent?’
Things are different in the US, with its passion for free speech and entertainment. ‘In the US, we have a tradition of argumentative, polemical advertising,’ says John Wilcox, from Georgeson’s head office in New York. He describes the US approach as ‘populist’ and adds, ‘Some of the more histrionic advertising is aimed at smaller, less sophisticated investors.’
But why is the US different? ‘We have a tradition of corporate democracy by which every shareholder is involved, big or small,’ remarks Wilcox. ‘In the UK, you don’t have that. Over there, there’s a kind of acceptance of decision-making behind closed doors.’
So US companies can say as they please? Not at all, insists Wilcox. ‘They’re still subject to anti-fraud provisions,’ he says. ‘And they’re forbidden from giving investment advice. But US securities law does protect small shareholders.’
Tyson, likewise, accepts the need for some parameters to remain. ‘You’d have to be careful not to let it go to extremes,’ he comments. ‘The FSA could set some guidelines. The Takeover Panel should let shareholders enjoy the ride and rely on the financial advisers to adopt a responsible approach.’
‘The view of the FT is that, under careful management, the rules could be slackened slightly,’ comments MacLeod (not many surprises there). ‘We would urge the panel to consider a change to allow adverts to provide a little more public debate because, at the moment, I’m not sure the rules are serving the best interests of the investment community. But the panel shows no sign of changing its rules.’
Pity, because, according to Wilcox, financial advertising is crucial in a takeover situation. ‘There is the question of how much it actually accomplishes, because it is obviously subjective,’ he says. ‘But one thing it does accomplish is it shows the degree of resistance. Companies do it to present a public face and send a clear signal to the market; it’s a question of getting into a dominant position.’
To be sure, financial advertising can be a very useful tool. ‘It is after all the most direct form of communication,’ says MacLeod. ‘There’s no interference from a journalist for a start.’
