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Good Year For a Merger

Written by: Andy Marken

Article Overview: If Being Acquired Isn’t Part of Your Firm’s Long-Range Business Plan…Prepare Your Survival Strategy

Good Year For a Merger

Nothing focuses the mind better than the constant sight of a competitor who wants to wipe you off the map.-- Wayne Calloway



In January alone nearly $200,000 billion 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.

New Language
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" 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.

Management's Dilemma
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.

Defensive Move
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 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 efforts 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.

Offensive Action
However, management should also use PR 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
appropriate press.

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.
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