A merger or an acquisition can present one of the most challenging scenarios an investor relations manager will ever face. While there may be some similarities which arm the practitioner with essential experience for the future, no two deals are ever the same.
Often there are another company’s shareholders to think about as well as your own. It’s also a time when analysts pick over the strategic goals of an organization with an obsessive attention to detail. And just as the road looks clear for the deal to proceed, the regulators string barbed wire across the freeway.
Some IR practitioners currently experiencing major M&A activity are clearly so disoriented – or maybe just politically circumspect – to make any public comment about recent events.
But others are prepared to share their experiences and many of them admit that, despite careful preparation, things can quickly turn from a well-planned pedestrian stroll into an Olympian sprint.
Kathy Fothergill, corporate director of investor relations at the Dow Chemical Company, says the timing of when the IR team hears of a deal depends on the size of the transaction. Her company is still trying to finalize its $11.6 bn merger with Union Carbide.
‘If it’s something relatively small that we are not likely to get a lot of enquiries about, we hear fairly late in the game. There’s not a lot we are going to have to do and we don’t anticipate having to respond to a large number of questions,’ she explains.
‘But for something major, like the Carbide deal, the IR department was notified a week before the deal was signed. And we needed to be. There was a tremendous amount of preparation that had to be done. It wasn’t something that was going to require just a simple press release and one or two phone calls.’
She says that assessing the potential IR impact of a deal is ‘not exactly scientific’ – it’s more a case of whether something is ‘material enough’ to generate a significant number of enquiries. This doesn’t always boil down to the size of a deal. It can also be important if the move is further evidence of a company’s strategic direction.
The senior IR director at Cisco Systems, Mary Thurber, agrees but she does tend to use a tangible measure to assess a deal’s likely importance.
‘We use the five percent of market cap measure because that’s what most folks regard as materiality. But we don’t only look at size, we also look at significance. For instance, our Cerent acquisition wasn’t a public deal but it was fairly large and also very significant. We therefore did a conference call as well.’
Cisco has completed more than 50 deals since the early 1990s and its business development group handles the planning and preparation for each. Thurber is the voice of IR in this group which usually meets a week to ten days before any announcement.
‘We discuss the messaging, we prepare a preliminary Q&A document and an executive summary, and we talk about the communications plan,’ Thurber says.
‘I then report back to a bigger group and we decide what we should do from a communications perspective. We look at it in terms of a flow chart. The first question we ask is: do we want to conduct a conference call or just proactive one-on-ones?’
If the IR team chooses not to do a conference call then there will at least be proactive calls to Wall Street about the acquisition – often on the morning of the announcement.
All in stride
But does all this represent more work than her usual IR responsibilities? Certainly the Q&As need to be updated, which is another task to do. There are also formal calls to prepare for. However, Thurber does not feel these tasks really increase her overall workload.
As confidentiality becomes increasingly important, the group involved in Cisco’s initial statements is getting smaller and smaller. Thurber only communicates information about the deal to her three most senior staff – the people who are going to be the most involved in the communication. Only after the market closes, on the day before a deal is announced, does she tell the rest of the team.
It’s a well-oiled operation at Cisco, it seems, where words like ‘mayhem’ and ‘frenetic’ don’t appear in the IR vocabulary. Even regulatory reviews have – so far – caused few problems.
‘In all my memory I don’t remember any occasion when we have slipped a deadline,’ she adds. ‘We work well with the government, we understand what they are looking for and we have a pretty good idea from the timing perspective.’
Fothergill at Dow Chemical suggests there’s an element of good fortune in what her counterpart says.
Dow’s merger with Union Carbide is currently under review by European and US authorities. This means the deal has been kept on ice since August of last year. So how has the IR team which Fothergill recently re-joined responded to this delay?
‘We have a policy of not commenting on any of the details. This would also apply to smaller transactions if they qualify for regulatory approval. When there is a definitive agreement with the other party, we also announce that there is regulatory approval required,’ she explains.
Thinking positively
Fothergill admits they may have been slightly optimistic to originally suggest that the Carbide deal would be completed in the first quarter but doesn’t think this delay has affected the perception of the deal in any way.
‘Investors and analysts who follow us also know these things are pretty much a crap shoot in the US as regards deals like this in the chemicals industry. With the EU it’s different. They give us a date when we can expect a decision. The FTC doesn’t work that way.’
David Cameron, head of corporate affairs at the Carlton media group in the UK, can empathize with Fothergill, having worked on Carlton’s proposed merger with United News Media for the last six months. The deal is currently under review by the Competition Commission.
Casting his mind back to the early stages of the deal he has no doubt that the workload significantly increases. ‘It’s obviously a lot more work than other acquisitions I have been involved with. We had to get a message out very quickly to a lot of people – communicating with buy-side analysts, shareholders, fund managers and the financial press.
‘You have to think very carefully about how the two companies combined can talk to both shareholder groups. You are trying to persuade your shareholders that this is the right move for them, but at the same time trying to persuade the other company’s shareholders,’ remarks Cameron.
Being media giants, it’s perhaps predictable that both Carlton and United would embrace new technology with open arms. Indeed they have, but it doesn’t necessarily make Cameron’s life any easier.
‘It’s like a program of rolling thunder,’ he says. ‘You use the wire services, you talk to the internet news bodies, you use the broadcast media, the paper media, analyst meetings, shareholder meetings and conduct an awful lot of one-on-ones as well as calls to your biggest shareholders.’
Cameron concludes, ‘There are a huge number of channels and every new one means a little bit of extra effort. Actually that’s good because by the end of the day, you should have communicated effectively to all shareholders, big and small.’
Hilary Nabarro, a communications manager at UK financial services company Royal & SunAlliance, has a special responsibility for institutional shareholders and agrees that using new technology brings with it an increased workload.
‘It can take quite a lot of time to maintain, largely because of the need for consistency across every type of communication,’ she explains. ‘If you have a web site you have the most frequently asked questions to maintain and therefore have to keep these up-to-date with what is being said on an individual basis to investors.
‘It can also increase the urgency of the enquiry. If you get an e-mail request it has to be answered quickly. It’s pointless for people to try and communicate by that method if they are not going to get a response within a reasonable timeframe. I would hope to respond in 24 hours. However something from the States may have to be dealt with it in three or four hours before you go home.’
But have they learned any practical lessons from the merger that created Royal and SunAlliance?
‘From the point of view of confidentiality and getting things organized it worked very well,’ she says. ‘Where we had difficulties was that at the beginning there was a management structure that proved to be unworkable and had to be resolved.
‘You can say what you like to people publicly and try to put the best case forward, but if people can see the problems you are not going to convince them otherwise. I don’t think it was actually a communications problem, it was a management issue.’
Nabarro doesn’t think that being prepared for an impending merger or acquisition requires the IR professional to be ‘at the top table’. However, having an ear to the ground is critically important.
Need to know early
This is something ABN-Amro’s investor relations director, Frans Bedaux, also believes in. ‘Before a deal is even proposed to the management team at the bank we will know about it,’ he remarks. ‘It’s imperative that if you want to do proper IR you have to know as early as possible about a deal, because every acquisition has its positives and negatives.’
Bedaux continues,’I have direct links to the acquisition department. If they feel there is something proposed or something in the offing I will be informed about it. As well as this I report directly to the CFO and talk, if necessary, to other board members.’
He agrees there’s also quite a difference between small and large acquisitions in terms of IR effort and responsibilities. A smaller acquisition generally involves just a press release or a conference call to analysts. Larger deals certainly require much more attention.
The attempted bid for Belgium’s Societe Generale de Banque by ABN-Amro last year caused Bedaux’s workload to increase significantly.
‘I hardly saw my family, but that’s part of the job – so long as it doesn’t happen every week it’s alright,’ he said. ‘In terms of communication channels you try and make sure everybody receives information at the same time. The internet is an exceptionally good medium for that and has been in use by us for some time now. Still, people do like to talk and always have several questions about the proposed acquisition.’
But when a deal also entails selling a gem from a country’s ‘crown jewels’ it’s not simply a case of talking to the markets, as Volvo’s Jonas Winzell can testify.
The head of investor relations was informed a week before the company announced it was selling its car division to Ford.
‘The car division was 50 percent of the Volvo group and obviously we had to deal with rumors at the time and speculations in the market. As a result there were very few people involved in the deal from the very beginning. I would say that the more sensitive or bigger a deal, then fewer people get involved.’
His role was to package the message, which was no easy thing.
‘It was necessary to have the right arguments from the start. This was a major company in our home country – not just a transaction among businessmen,’ Winzell says.
‘Clearly the focus on such a broad audience meant a period of intensive activity during this time. At the same time as explaining the divestment of the car division, Volvo also had to explain the group’s future direction. This included making a move for truck and bus company Scania at the same time as the Ford deal was being completed.’
While an extraordinary general meeting was being planned to consult shareholders about the Ford deal, the IR team also had to be involved with a number of announcements to the investment community about the Scania bid. These included numerous stock purchase announcements and, at one stage, a break in discussions between Volvo and Scania’s principle owner.
The EU has since decided to halt the deal because of unresolved antitrust issues.
While Winzell and others are prepared to share their experiences, there are many IR practitioners working for companies that are merging or being acquired in unfriendly circumstances who prefer to keep their own counsel. This makes it difficult to generalize about workload or involvement.
One thing is clear, for IROs the pace is frenetic and few get an easy ride. For those embarking on such a journey one piece of advice holds true: strap up tight, the road can be tortuously long and covered in potholes.
