Good Year For a Merger
By: Andy Marken
|In his nearly 25 years in the advertising/public relations field, Andy has been involved with a broad range of corporate and marketing activities. Prior to forming Marken Communications in mid-1977, Andy was vice president of Bozell & Jacobs and its predecessor agencies. During his 12 years with these agencies, he developed and coordinated a wide variety of highly visible and successful promotional campaigns and activities for clients. A graduate of Iowa State University, Andy received his Bachelor's Degree with majors in Radio & Television and Journalism. Widely published in the industry and trade press, he is an accredited member of the Public Relations Society of America (PRSA).|
In January alone nearly $200,000 million worth of M&A (mergers & acquisition) activity was announced. SBC and AT&T, Procter & Gamble and Gillette, Alltel and Western Wireless, Liberty Media and United GlobalCom, News Corp and Fox Entertainment and the list goes on. The rising stock market boosted management confidence to do deals. The world economy showed signs of expanding. All indicators point to a pent-up M&A activity and enthusiasm for 2005.
And while the mind-boggling, record-breaking numbers grabbed the headlines they were only the tip of the iceberg. M&A specialists estimate that there are nearly 300 friendly and unfriendly acquisitions a day. Many more “discussions” are started and broken off.
It has been a four-year dry spell for M&A banks. You can be very certain that they see a very lucrative and busy year for their industry. They intend to get their unfair share whether both parties are ready for the wedding ritual or not.
Hostile and highly public efforts such as Oracle’s acquisition of PeopleSoft cost PeopleSoft considerable time, money and effort to fight off the advances. In the end it also meant the loss of employment for thousands of individuals. In today’s pro-active consolidation environment, it is rare for management for public and private firms not to be concerned about the possibility of friendly or hostile tender offers or proxy fights.
Today’s boards of directors, company presidents and officers have developed a rich addition to their vocabularies. Expressions like "lead horse," "golden parachute," "white knight," "scorched earth," "shark repellent," "poison pill," "greenmail" and "arbs" (see box) are as well understood as bandwidth, VoIP, CPU, SKU, media center PC, venture capital, and burn rate.
Management has added new members to their teams that include takeover lawyers, investment bankers, proxy solicitors and PR counsel.
The new language and team members are key to management’s success because there are hungry, smart, and well-paid people across the country who do nothing all day long but dream up deals. Mergers and acquisitions are no longer mere targets of opportunity. Today, they are an integral part of many organizations’ long-range growth strategy.
Unfortunately, few corporate heads have received any training or education in such activities as mergers, acquisitions, and take-overs. Trial by fire is a difficult way to gain such expertise.
|Words To Fight By|
|Lead Horse||The investment banker who calls the shots in the proxy fight, tender offer, or acquisition.|
|Golden Parachute||Large payments to senior management if they lose the takeover challenge to make certain they are well paid if they are fired or lose their responsibilities.|
|White Knight||A company that comes to the aid of another in the takeover fight. They rescue the firm being attacked by acquiring it on better terms.|
|Pac-Man Defense||A tactic by which the company being attacked turns around and attempts to acquire the pursuer. It can succeed, or it can frighten off the initial firm.|
|Scorched Earth||The company discourages takeover by making itself less attractive through the sale of divisions or assets or incurring major debts in the event of a takeover.|
|Shark Repellent||Measures used to fight off the pursuing firm including changing the bylaws to make it difficult to be acquired.|
|Poison Pill||An action that makes it so expensive to acquire the firm that the predator goes off to seek other game.|
|Greenmail||Expensive blackmail payments to buy stock back from the predator plus payment for his "expenses."|
|Camomail||Camouflaged greenmail or black-and-blue mail.|
|Arbs||Arbitrators are intermediaries in the transactions who often make millions for a few days of work in putting "deals" together.|
Financial sharks find today’s business and financial environment to be a very rich feeding ground. Deregulated financial institutions have produced a new breed of investment bankers and lawyers who have access to large sums of money from banks and investors that are trying to improve the returns on their money.
It's not surprising that healthy companies that have a clear idea of their goals and solid business model sometimes feel like wounded seals in a tank of great whites.
It's little wonder that the feeding frenzy gives company management fitful, sleepless nights. They have to divert their attention from the day-to-day operations and growth of their firms and devise plans to protect their organizations. Unfortunately most of these efforts are defensive rather than preparatory or offensive. As a result, they are expensive and disruptive.
When companies begin making unfriendly or undesirable overtures the usual reaction is to call in the corporate lawyers and put together a defensive plan. This usually includes adding bylaws that require super majority shareholder approval of mergers and/or liquidation; acquisition of property that can create regulatory and antitrust barriers; preparation of “black books” with contingency defense plans and elimination of cumulative voting and classification of the board of directors.
All of these steps can be effective and should be considered when the sharks are already circling.
Public relations also plays an important role in these campaigns as management aggressively works to persuade shareholders that it is in their best interest to support their management.
Many equate the PR activities in these situations to those carried out in a political campaign--black hat/white hat, character assassination, and guilt by association. The fast paced campaign includes scores of news releases and position statements, a myriad of phone calls, and instantaneous decisions regarding what should and should not be said.
Quality and carefully planned media activities can play a key role in advancing management's cause. They can solidify and clarify management's position. They can influence institutional and public opinion.
However, management should also call on public relations to carry out offensive and strategic activities that keep the firm from being put on the defensive. Defensive moves can't address the critical questions which arise in a takeover situation, such as: What are the maximum capital and earnings values of the company's assets? Who can best manage them to provide the best return to the investors?
Positive and proactive PR programs can address these issues for private and public companies.
Few private firms do anything to posture themselves with the financial community. However conducting even basic financial public relations activities can put you in a solid position when suitors call. They can also put you in a stronger bargaining position if management feels a merger is in the best interest of the organization, its investors and its employees.
Unfortunately, even firms that are public meet only the basic SEC requirements. They do little to "sell" themselves to the investor, financial communities or marketplace in general.
Activities that private and public companies should undertake include an aggressive, prompt disclosure program on new products or services as well as research breakthroughs and contracts. Publicly held firms obviously must announce sales and earnings results. Private firms can modify this effort to position itself in the marketplace.
The annual report is more than a report to investors and can be effective for both private and public organizations. The report can be an important compilation of company news and information which can serve as a year-long selling tool for the company, its vision and direction as well as promote its products/services. This report should emphasize the firm’s key assets its people and their commitment to the success of the company.
Other activities include fact files or "white paper" kits for the financial community and press; meetings with industry analysts and strong publicity activities aimed at the
All of these activities add credibility and viability to the firm. They provide an excellent platform for management to control and present its messages. They provide an opportunity for management to emphasize the value of its assets and how they are being managed.
Battle Lines are Drawn
By pressing home these results, management gives investors, customers, partners and employees a much better understanding of the company. In the event of unfriendly acquisition overtures, management gives all of these interested parties a sound understanding of the company’s complete value proposition.
Corporate takeover fights are management's equivalent of war. And as in war, no one can rely solely on defensive weapons. A solid PR strategy and program can be the strongest strategic and proactive weapons that can be used to advance management's case and position as well as control the issues.
By developing and carrying out proactive PR activities at the outset, the war can be won ... or defeat can be accepted on favorable terms.
© Copyright 2005, Andy Marken
The author assumes full responsibility for the contents of this article and retains all of its property rights. MarcommWise publishes it here with the permission of the author. MarcomWise assumes no responsibility for the article's contents.