How do you manage IR through a takeover that might land you out of a job? Two IROs share their survival skills
Morgan Molthrop was vice president of IR at California-based Infonet Services Corp, which was bought by British Telecom in March 2005. He was retained by BT Infonet as a consultant and is writing a book about his post-corporate experiences.
Takeover blues
How secure is your job? In the world of IR, the answer is often ‘not terribly’. A merger might be great for shareholders, but there’s rarely room for an acquired company’s IR team in the combined structure. Here are a few tips on how to make lemonade when your company gets squeezed.
Be a trusted adviser. Your relationship with your CEO and CFO will determine how you are treated when they sell the company. Your value as a trusted adviser comes from knowing what you’re talking about, leading the company through difficult communications challenges, saving the CEO from embarrassing situations, and – perhaps – being an effective internal referee.
Once they know you can be trusted, the powers that be will naturally turn to you to help them through what amounts to the paramount decision in the life of a company – when a slip of the tongue or an operational snafu can derail the deal of a lifetime, when investment bankers see the communications function as theirs alone, and when legal advisers see IR as a complication and an opportunity for casebook disaster.
Think strategically, if not unconventionally. Our company couldn’t have lasted as a standalone firm while continuing to be competitive. In fact, we were the last company in our field that wasn’t part of an industry giant, and eventually we just wouldn’t have had deep enough pockets to compete. But we could provide a higher level of customer service than others, and our strategy was to take that client service message to Europe.
Our last direct peer had been acquired by France Telecom and, unlike analysts and investors in the US who were averse to any telecoms story at the time, Europeans were eager for a client service-oriented service provider. By creating interest among European investors and exploring moves such as a listing on the London Stock Exchange (LSE), we helped attract the attention of our ultimate suitor.
Develop an M&A plan in advance. Just about every company will eventually be bought or buy another firm. And just about every legal team will tell you that you can’t breathe a word before the deal is finalized, even to your outside IR consultant. So practice – that is, take your team on a merger test run using fake names and fake press releases. Create a binder that has all the contact names of press people, key shareholders, executive contacts, and so on. Keep it updated quarterly and regularly discuss the fictitious merger with your internal and external teams.
That way, when the real deal happens, everyone knows what’s expected of them and you can easily translate your fiction into reality. Remember, any merger should start with a bullet point ‘talking sheet’ that the CEO might use to describe the deal. Begin your exercise by creating a fictional talking sheet, promoting the current best assets of your company and some fictional assets of a peer company. Practice security during test runs, too, to find out where leaks are likely to spring.
Reach out to other IROs in your industry. One day one of them could be your boss, or you could be theirs. Knowing how they approach their jobs, likes and dislikes will prepare you for the day when you have to work together for the common goal of promoting a ‘unity event’. Develop a professional rapport, perhaps with regular lunches to discuss the industry issues, challenges or shareholders you have in common. Use National Investor Relations Institute (Niri) events to network with other IROs, especially if you’re in different regions.
Clarify your goals. You may be helping navigate the very deal that will put you out of work but you still have to function professionally. Think about what would motivate you to keep going. What kinds of incentives do you believe you deserve? What will it take for you to give your all to this situation? Write it down, mull it over. Don’t sell yourself short. The truth is, M&A is where most senior executives make their fortunes and, compared with them, you’re not asking for a fortune. You won’t get a golden parachute but, if you play your cards right, a bronze one can be tailored just for you.
Demonstrate your loyalty. You’re in the car going to a meeting with your CEO or CFO. Naturally, he or she turns to you to talk about what’s going on. Now is the time to say, ‘You know I’m going go through this with you. I wouldn’t leave now. But please, while you still have the power, make sure I can have some maneuverability afterwards.’ Get his or her word on it and when the stock incentive list is made, make sure your name is on it. Now there’s no excuse for you to be distracted from your ultimate goal: to get the deal done effectively and communicated brilliantly.
Be there for the deal’s close. Few experiences in your life will be as exhausting or as rewarding as bringing a merger to a close. We went through more than 70 drafts of our press release in 72 hours while preparing a press conference, a conference call, joint media appearances, a new web site, shareholder communications and employee sessions in every region of the world. And remember: it’s not a deal until it’s signed, sealed by the board and then approved by shareholders. Be prepared for a lot of hurry up and wait and several Red Bull-fueled nights.
Aid in the transition. In the time between the deal being announced and shareholder approval, meet with the IRO of the company you’ve merged with. If you are now his or her boss, great. Be frank about his or her prospects within the new organization and help out if he or she is looking for a new job. If he or she will be your boss, ask for the same and be open to ideas.
Help with the transition to the very end, providing all necessary documentation and whatever information he or she might need to make the job easier. For me, this resulted in a consulting position after my role was officially eliminated, giving me the time to
recover from an exhausting schedule and the flexibility to see more of the world’s non-conference room facilities.
Shipping news
Based in Montreal, Jeremy Lee was Vice President of IR and Public affairs for UK-headquartered CP Ships. The company was acquired by Hannover-based Tui through its container-shipping subsidiary Hapag-Lloyd. Lee is now with global capital markets adviser Christensen, heading its Canada business.
Like many IROs, I had not had any experience of managing the IR function on the receiving end of a takeover offer. But, as so often happens in IR, I had the opportunity to learn something new every day.
On August 21, 2005, CP Ships announced its board’s recommendation of an all-cash offer from Tui of $21.50 per share or $2 bn in total. Including debt, the transaction’s total value was $2.3 bn. The final step of the acquisition was approved at a special shareholders’ meeting in Toronto on December 14, 2005. CP Ships shares were de-listed from the Toronto Stock Exchange on December 20, 2005.
Speculation that CP Ships might become a target started in August 2004 after it restated its financial results for the years 2002 and 2003 and the first quarter of 2004. This coincided with disappointing performance in its largest market: the transatlantic. The company’s stock price suffered a drop of more than 30 percent.
Rumor intensified around the end of April 2005 when the world’s number one carrier, Maersk Sealand, announced its plan to buy Royal P&O Nedlloyd. The industry had been ripe for consolidation for some time and the financial community anticipated further transactions. From April onwards the phone calls probing for any hint of a deal in the making increased significantly.
‘We do not comment on rumors’ became a daily mantra. Interestingly, sell-side analysts did not probe. Maybe they knew they would get no comment from an IRO who was fast gathering experience in dealing with sometimes far-fetched rumors, many of which originated in the industry media and then made the rounds of investors and business journalists.
The kick-off
The most satisfying aspect about the pre-acquisition announcement period was that Hapag-Lloyd’s name never featured as a potential suitor, even after an announcement at the end of July that CP Ships was ‘in discussions regarding a possible transaction’. And yet Hapag-Lloyd and CP Ships are an obvious match with complementary markets, services and ship fleets.
August was a busy month. On August 11, 2005, CP Ships announced record second quarter results, reflecting significant progress in rebuilding profitability in the firm’s transatlantic business. For the next ten days, in anticipation of a possible announcement about a transaction, IR and communications worked long hours to prepare news releases, investor and employee presentations, and Q&A materials. Daily conference calls took place between Tui, CP Ships and outside advisers including investment bankers, lawyers and IR and communications teams.
IR spent the days immediately after the acquisition announcement gathering reactions from analysts and institutional investors for senior management, and handling a deluge of calls from merger-arbitrage funds.
The IR experience with current investors was painless as shareholders were delighted with the $21.50 share offer, which is 28 percent higher than the settled price on April 28.
My task was made easier by the fact that the transaction was 100 percent cash and, based on comparable transactions and historical and prospective earnings performance, the offer represented immediate and full value to shareholders. Shareholders were also confident that Tui would complete the transaction on a timely basis, which it did.
The arb effect
The IR experience with the ‘arbs’ was more challenging. On the first few days of trading following the acquisition announcement, volume increased 20-fold as merger-arbitrage traders traded their often highly leveraged positions. This group of investors focused on the possibility of a counter-offer at a higher price and the risks of the transaction not completing, carefully analyzing details of public documents to find a special angle.
High trading volume – a normal feature of this type of transaction – continued into October. The initial offer expiry date of October 7 was extended until October 18, pending certain regulatory approvals, including the EU’s. Counter-offer rumors increased. Following the extension of the first offer period, tendered shares were withdrawn as the merger-arbitrageurs wanted to maintain their positions in the stock until the last moment in case of a possible counter-offer.
On October 12 EU regulatory authorities approved the transaction and counter-bid rumors subsided. On October 18 shareholders tendered 89.1 percent of the outstanding shares, sealing the acquisition even though the number was fractionally short of the 90 percent required under Canadian corporate law to accelerate closure through a compulsory acquisition of the remaining shares.
From an IR perspective, there was not a lot left to be done other than to continue to provide general information to retail investors directing them to the information agent, the transfer agent or their brokers for assistance in completing the share tender documentation. However, a special shareholder meeting was required for Tui to acquire the remaining outstanding shares. Somewhat of a formality, this took place on December 14 in Toronto.
Lessons learned
1- Ensure you are part of the ‘inner circle’ on the transaction. It is essential that IROs can give the impression to investors – especially the hedge funds and arbitrageurs – that they have sufficient and up-to-date knowledge.
2- Keep in touch with the transaction team. Unless you have experience of the documentation for these types of transactions, you will need the team’s help in understanding the process and the jargon. Although time-consuming, this ultimately reflects in the quality of your communication with the investment community.
3- Communicate with your IR counterpart in the acquiring company. Hedge funds in particular play both ends and will use any inconsistencies in communication to leverage more information from you or the acquirer.
4- Maintain a close relationship with your own communications group to ensure message consistency, tone and content.
5- Read all transaction-related public documentation carefully; merger-arbitrageurs are experts at reading these documents. Stick to the facts – do not get drawn into speculating. The arbs look for the slightest indication in the content or tone of your response as a signal of new or increased risk or opportunity related to the deal.