Last year's M&A boom inspired some natty takeover documentation in the UK. Take a peek between the covers and check out the situation in the US
If there's one time when companies should be producing decent corporate literature it's when they've got their backs against the wall in a defence situation,' says a London-based designer in an exasperated tone. 'Unfortunately, the process is so often driven by the conservative fears of lawyers and merchant bankers that the important messages get lost along the way.'
He's got a point. Let's face it, to a non-lawyer, the bulk of corporate finance literature is at best dull, at worst, unreadable. It's not even very difficult to persuade a lawyer or two of that view. Provided, of course, that: (i) you have a firm agreement that any such views are off-the-record; and (ii)that if they are nevertheless published, the lawyer concerned will immediately revert to the view that documentation must protect the client from every conceivable occurrence in the future. Thus the sentence structure which communicates everything while communicating nothing.OK, so the lawyers have their place and it is easy to be cynical about their role. But the whole point of the documentation - whatever its form and in whichever jurisdiction - is to communicate messages about a particular deal to shareholders. And that means making it appealing and accessible to those audiences. If shareholders are largely ignoring the messages because of the presentation, something has gone awry.
Ironically, it is the desire of regulatory authorities to ensure that information is not misleading that lies behind the proliferation of dull documents, dull announcements and dull advertisements. The regulators' remit is to protect those with small budgets from the giants' use of big marketing spends to help seal a deal. But if the fear of misinformation is real, the fear of confusingly complicated information being ignored must be even greater.
There is also an implicit contradiction here in the approach of company executives. For although they are quite willing to allocate large budgets for design and production of annual reports, with their retrospective marketing messages, when the independence of the company itself is under attack they seem to forget the rules of strong corporate identity and happily hand everything over to the myriad advisers working on such deals. The underlying message? Weakness under fire.
For once this might just be an area where the UK is ahead of the US in the investor relations game. Whereas hostile bids in the States remain very much in the hands of the lawyers and proxy solicitors, the UK has increasingly seen corporate literature designers being invited to sit around the advisory table. The result has been some innovative documentation which grabs attention and has a graphical theme consistent with the messages the company has been trying to convey over a longer period. The legalese hasn't disappeared, of course, since the copy remains in the hands of the lawyers and investment banks. But it comes packaged in a more approachable fashion, which just might incline a few more shareholders to open the covers and look inside the documents.
The theme used by Northern Electric in its defence against Trafalgar House last year is a case in point. A strong but simple graphical theme ran on the cover of the three defence documents. The corporate logo was present throughout and the images were linked to the company's story and goals. The typography was designed to bring core messages to the fore while making the legal text more appealing to the eye.
David Ritsema of London-based designers Radley Yeldar which worked on the Northern Electric documentation says that defence and offer literature must be strong and bold but not too clever. He argues that good design will come into its own in a close-run battle to win over shareholders in a hostile situation. 'The side which has got the best platform stands the best chance of winning the argument,' says Ritsema. 'Design is giving the argument the best platform.'
For Northern Electric it was critical that the defence documentation communicated messages to the private shareholders who made up the largest single block vote. Andrew Horne, corporate affairs manager at Northern Electric, believes that most takeover literature speaks in a language which private shareholders tend not to understand. 'We put fancy covers on our defence documents to make it look less intimidating,' says Horne, adding that the images also helped the company appeal to its local shareholding base.
We're not just talking about appealing to private shareholders here though. Investment professionals may claim that they are not swayed by corporate advertising and marketing but, as Andrew Dowler of Financial Dynamics in London points out, even fund managers are human. Anyone and everyone responds better to some straightforward language jollied along with a few thoughtful images.
'Everyone is affected by powerful marketing and design,' says Dowler. 'Any research will show you that even the most sophisticated fund managers are affected by corporate advertising. They're much happier reading well-designed documents than 40 pages of densely set writing.' He adds that although the textual content of the documents emerges from the merchant bankers after many drafts, there is now at least a recognition by many investment banks in the UK that financial PR, investor relations and design consultants all have a place round the table.
Designers who have been brought into the takeover advisory team stress that the documentation remains bound by strong time and content constraints which can make the work both demanding and rewarding. Vanda Marlow, managing director of CGI Ingleton Thomas in London, whose firm has worked on recent defences for both Lasmo (versus Enterprise Oil) and Fisons (versus Rhne-Poulenc Rorer), believes that a design consultant can help with both the production and communications objectives.
She argues that even if the brief doesn't allow for any graphical input, the design agency can focus the reader's attention on the hierarchy of information contained in the document by skilled use of typography. 'The copy remains entirely the responsibility of the bank,' Marlow adds. 'But we can advise on the tone of voice, on the colour and on how to get the headings right - making it accessible to the reader.'
'Normally these documents would have gone straight to the printers,' says Marlow. 'As soon as a designer is brought into the loop it allows for a continuity with all the other corporate communications. It doesn't make sense to talk in a different voice at such a time. It's important to show that the company isn't undergoing a corporate identity crisis at such times.'
Continuity and consistency were the hallmarks of the design of Scottish Power's literature for its successful offer for Manweb last year. The documents were designed by London-based Addison which had previously worked on the company's annual report. Malcolm Scott, corporate publicity manager at Scottish Power, says that the documents needed to have a strong corporate feel to them, and as Addison already understood that style and had M&A design experience, it was the obvious choice.
'We were trying to create a family of documents consistent with our corporate message,' says Scott. 'Equally important was that the material and information we put out gave the impression that we had been planning this move for a period of time. In contrast, the Manweb documents tended to be reactive rather than proactive, emphasising the defensive position.'
That's in contrast to many situations where the defence team realises that it must go for broke to win the argument. Richard Pearson, a director of College Hill Associates in London, recalls commissioning a photographer to take snaps of Redland's brick stocks as part of Steetley's defence. The pictures went onto the cover of one of the defence documents to show that Redland was misleading shareholders.
Pearson also used a cartoon to illustrate the level of cross-shareholdings in a cross-border defence of Camford Engineering from Markheath. The reproduction of the cartoon in a Sydney newspaper is believed to have contributed to Markheath's investment downgrading during the bid. Pearson says the Takeover Panel remains fairly strict in its rulings as to what can be included but that there is a growing recognition that strong design can help win the day.
Miles Hutchins of Addison has worked on both sides of the equation - for Scottish Power in its offer for Manweb and for Wellcome in its defence against Glaxo, to name two recent examples. He says that the defence documents tend to allow the design team more leeway. 'In a defence there are fewer holds barred,' he says. 'The documents are often less technical and more graphic. More often than not the IR manager will say there's only one crack at this so let's go for it. It's an appeal to the emotions. When you're working on a defence you become part and parcel of that team.'
Indeed, being brought into the M&A world as part of that 'team' can mean lucrative rewards for a design agency.
Nonetheless, the need for the design agency to be permanently on call during a bid reduces the list of those wiling and able to rise to the challenge. Reg Pauffley of London-based Pauffley & Co says that despite being big enough to cope with the work, his firm is less than enthusiastic about taking it on because it's too disruptive of normal business. 'Unless you're geared up as a crisis management PR company, existing clients' work has to suffer,' says Pauffley. 'We've got the capability and the capacity but we don't go out looking for it.'
With last year's M&A boom set to continue into 1996 the likelihood of more parties in the UK takeover process seeking design options to present their case looks set to increase further. But there's little statutory background to this shift in approach.
Those lawyers, again. David Johnson of Slaughter & May in London confirms that the legally required content of the documents in the UK has changed very little over the past few years. 'But there's a definite move to make the first part of the documents simple, understandable and well- presented,' he says. 'The second part retains the flavour of dull documentation: that will never change. But there has been a move towards greater emphasis on the front half.'
Adrian Liddell, executive director of M&A at Lehman Brothers in London, points out that, unlike in the US, a UK takeover bid is not just about the money involved in the deal. A company also has to win the argument with the shareholders. Liddell, who recently worked on the Rhne-Poulenc Rorer side of the Fisons deal, says that in the US many shareholders sell out straight away - often to the arbs - as soon as the price of a stock starts rising after a bid has been announced. And the documentation is very much dictated by the SEC and the legal side of the advisory team.
That view is supported by David Bernstein, chairman of the corporate department at New York law firm Rogers & Wells. 'The UK document is much easier to read and more intelligible to the layperson,' he says. 'Due to SEC rules there is a legalism to the documentation in the US, needed for compliance with the requirements. When they are tested in the courts they are tested a sentence at a time and each sentence has to be full and accurate. That may give more disclosure but it's not very readable.'
Bernstein adds that those seeking to justify the US approach to takeover documents would point to the fact that they are mostly read by professionals, who want full and complete disclosure. That's because much of the stock will be bought by arbs as soon as a hostile situation arises.
Is that putting the chicken before the egg? Striving to communicate messages to the original shareholders would surely be of greater help in the SEC's bid for equality of information. Of course, in a proxy battle, that's just what the solicitors are trying to do. And since the liberalisation of the SEC proxy rules in 1992 the language used in proxy materials has changed for the better. It is now far less legalistic; far more emotive. Bullet points and interrogative statements are the order of the day. But how long will it be before the US starts to jazz these letters up with the designer approach?
Michael Mackey of Corporate Investor Communications in New Jersey, does not envisage any moves in that direction in the near future - although he concedes that there has been a trend to include a dash of colour and more graphs. Mackey stresses that speed is crucial as fight letters are often destined for Street name holders and must pass through banks and brokers before reaching their target. The writing and formatting of fight letters remains strictly in the hands of the company, the lawyer, the investment bank and the proxy solicitor.
In short, US design agencies have yet to convince the major players that their input is critical to the takeover process.