Last year, more than 9,000 merger deals were forged (compared with only 1,877 in 1991), but the verdict is still out as to whether shareholders will ever look back and
celebrate the record. A report published for BusinessWeek by the consulting firm Corporate Branding, indicates that less than half of the mergers consummated during the
'80s and '90s have created real value for shareholders. The report also cites claims by McKinsey & Co. that nearly 80 percent of mergers don't earn back the costs of the
deals themselves.
And yet, merger mania shows no signs of stopping, and corporate communications execs have the happy challenge of defending merger announcements before an increasingly skeptical
lot of investors and securities analysts.
Defining Moments
No doubt, the first day of a merger announcement - and the 72-hour road show that follows - constitute a critical window for explaining the strategic rationale behind the
merger to the financial community. I/R channels on the Web have become standard conduits to individual shareholders, often including streaming video and audio presentations. But
road shows are still a critical means of reaching investment bankers and key analysts. And analysts' initial pronouncements tend to have a trickle-down effect, tempering the
media climate and overall mood surrounding the deal.
Naturally, it's good to anticipate the questions that investors may ask, but what's more critical is responding quickly to specific points of criticism. When Quaker Oats
bought Snapple for $1.7 billion in 1995, shareholders were wary of the high price tag on the deal - especially in light of the identity gap between Snapple's edgy brand and
Quaker's otherwise staid products. "[Quaker was] trying to buy that hipness," says Jim Gregory, CEO of the consulting firm Corporate Branding. "They might have been better off
developing their own product line." Quaker later sold Snapple to Triarc for a devastatingly discounted $300 million.
"Most analysts and institutional shareholders understand the true value of companies, regardless of what they're trading at in the marketplace. And they'll comment to reporters
as to whether they think they're paying a fair price or overpaying," says Jeffrey Taufield, senior partner with Kekst and Co., a merger specialty firm boasting clients such as
Lucent Technologies, Time Warner and Citigroup.
Watching and Waiting
Ironically, the most lethal investor relations errors occur when the pressure is seemingly off.
"The biggest mistake acquiring companies make is not focusing on post-announcement PR," Taufield says. "There's always a lot of excitement attached to the initial
announcement, but what often happens after that is companies put their heads in the sand and don't communicate effectively about management changes and [critical] integration
strategies." Employees get frustrated and confused - and investors monitor their actions closely.
A merger that appears strategically sound at the starting gate can quickly stumble if poor internal communication results in senior-level management defections. (Consider the
fate of DaimlerChrysler, which restructured a year into its marriage and suffered an exodus of top talent, including several board members.) "This has a big impact on investor
sentiment," Taufield says.
How much impact? A recent Burson-Marsteller survey of 1,400 "business influencers" found that CEOs who could attract and retain top talent enjoyed the best reputations;
moreover, 95 percent of analysts responding to the survey said they would buy a company's stock based on the reputation of its leaders (PRN, March 20). Lose your best
talent, and in many cases, you lose the intellectual capital that's holding the deal together.
Swift Action
The latest conventional wisdom states that excessive turnover can be avoided in the long run (thereby curtailing investor attrition) by announcing senior management changes on
day one. When Honeywell and AlliedSignal announced a $25 billion merger deal last year, company leaders immediately posted plans to move Honeywell's headquarters and "rolled out
severance packages to all 1,000 employees at Honeywell's [old] headquarters that day," says John Bernaden, a veteran of the merger. (Bernaden, who was previously with
AlliedSignal, is now director of internal communications at Sprint, and is currently enmeshed in Sprint's pending $127 billion deal with MCI WorldCom.)
"Speed is the operative word in merger integration," Bernaden says. Companies that announce their new senior management teams quickly perform better over time and are less
likely to suffer from employee inertia and investor fallout. But such dramatic moves constitute a big pill to swallow - for both investors and communicators.
If you've got Sunday available as an announcement day, take it, Taufield urges. "It's a free day. The market isn't trading, and you really have time to explain your story.
You've got all day to work the press, analysts, and institutions." To paraphrase the old adage, seize the slow news day.
(Gregory, 203/327-6333; Taufield, 212/521-4800; Bernaden, 913/624-3000)
Road Rules
Road shows that bring CEOs face to face with the financial community are permitted in the first three days following a merger announcement (after which time, the merging
companies may continue to provide I/R information to interested parties, but are prohibited from overtly "selling the deal" via face time meetings). Some scenarios in which road
shows are especially critical:
- Your company announces plans to acquire two companies at once, giving analysts and investors a lot to digest in a short period of time.
- You end up paying a very rich premium for a company that will help you advance strategically, but you need face time with investors to justify the price tag.
- Your company is weakened - to the point that you have no choice but to acquire or to be acquired - and you make a defensive acquisition. This makes it harder to convince
shareholders that they stand to benefit from the move.
Investor Triage
Got a merger announcement in the works? Here's what investors will most likely want to know first, according to Jeffrey Taufield at Kekst and Co.:
1. What is the strategic rationale behind the decision to merge? What will it mean for the company in both the short term and the long term?
2. Is the price the acquirer is paying for the target company fair by market standards?
3. Will the acquisition be accretive or dilutive? That is, will it add immediate earnings to the bottom line, or bite into earnings for the short term? Shareholders don't like
dilutive acquisitions that cause the stock price of the acquiring company to drop.
4. Will the merger really happen? Many acquisitions are contingent on shareholder or regulatory approval (or, in the cases of global mergers, governmental approval).
5. When is the deal expected to close? The longer a deal is in limbo, the greater the likelihood it will cave in the wake of heightened employee anxiety and subsequent bail-
outs.