While there are no tried-and-true steps to take when a shareholder activist contacts a company’s management, there are actions that can mitigate potential damage. A study that evaluated 13D filings between 2001 and 2005 found that most interactions between activist shareholders and companies are not intended to be hostile and, when they do escalate, it is typically a result of a lack of engagement and/or communications by the company target. Following is one effective best practice that will minimize damage in the long run:
â–¶ Develop an active media relations program. Many companies shy away from media outreach efforts because of recent poor performance. However, a good PR professional with relationships in the financial media can help develop a story and pitch it to the appropriate targets. While the company’s performance may be lagging, it is important to understand why and to see if there are other positive aspects that can be developed into an effective investment story.
For example, if the company is in an industry that is out of favor and all companies in its peer group are under pressure, it might be a turnaround story. Plus, knowing the investors that are buying the stock and the reasons why analysts are recommending the stock can often lead you to a story. It may be that Wall Street believes management has positioned the company to outperform when the industry rebounds and that the strategy will pay off.
To develop an effective media relations program in an activist situation, it is always helpful to have a strong IR expert on board who can help the company with their investment community relationships and develop an understanding for the company’s investment merits. Together, they should have the ability to develop a sound investment story, determine the appropriate target publications and gain positive financial media coverage before an activist has the opportunity to go public and potentially damage the company’s hard-earned reputation.
This article was written by Betsy Brod, a partner with MBS Value Partners and member of the Worldcom Public Relations Group. She can be reached at [email protected].