Companies fighting a hostile bid need all the resources they can muster. Public relations can be a valuable weapon, says Curtis Fox.
When faced with a hostile bid, you need to ensure your agency has the right capabilities. Time is of the essence, and specialist financial knowledge combined with very strong communications skills are at a premium. Your team has to be both cohesive and effective.
Winning or losing hangs on shareholder perception, familiar terrain to the PR consultant, but much also hangs on knowing how to handle the shareholders, the City and the financial media.
Whether or not companies hire additional agencies depends on any number of factors. It mainly boils down to a question of what kind of weapons companies want in their armoury. This decision will be based on which issues the management team think will be central to mounting a successful defence.
Compatibility on a personal basis is also important. Clearly, there must be synergies between the thinkers at the investment bank, the PR agency, and the top-tier management of the company. Bids can be protracted; activity tends to be frenetic and intense, and the watchword is after all "hostile". In these circumstances, a team which gets on well together and shares objectives is a fundamental requirement.
Shareholders, on whom all depends, are divided into institutional investors, and private investors. Communicating directly with institutional investors is standard investor relations (IR) practice, and takes place by fax, post, the Stock Exchange's Regulatory News Service, and increasingly by e-mail.
While direct communication will continue during hostile takeovers (for example through direct contact with institutional shareholders, or via telephone campaigns and direct mail for retail investors), the use of the financial media, the internet, e-mail, and above-the-line advertising (subject to regulatory restrictions) are equally influential.
The situation in continental Europe is slightly different. German business in particular has long been criticised for putting the interests of shareholders last, behind those of other stakeholders, including management, trade unions and employees. Trade unions, for example, have half the seats on a Germany company's supervisory board, making it easier for them to resist job-threatening takeovers. German law and practice also discriminate against bidders.
In the UK, there are rules in the form of the City code on takeovers and mergers and the rules governing substantial acquisitions of shares, which set a broad framework for communications activities. Adherence to the code is monitored by the takeover panel (a team of leading City of London figures, including representatives from bodies such as the British Bankers Association and the National Association of Pension Funds). This is essentially a consultative body with limited legal powers of enforcement, which therefore relies quite heavily on the goodwill of companies and advisers.
All documents, advertisements and statements made during the course of the hostile bid must satisfy the highest standards of accuracy, and the information must be adequately and fairly presented. This applies whether it is issued by the company or by the financial PR adviser on its behalf.
Above-the-line advertising can be influential, indeed crucial, to persuading or dissuading the shareholders of the target company. For example, it can emphasise the company's excellent financial performance and management credibility.
You cannot publish an advertisement connected with an offer or potential offer unless it falls within one of the categories listed below. Unless it falls within categories (i) or (viii), it must be cleared with the takeover panel in advance.
(i) Product advertisements not bearing on an offer or a potential offer (where there could be any doubt, you must consult the panel).
(ii) Corporate image advertisements not bearing on an offer or a potential offer
(iii) Advertisements confined to non-controversial information about an offer (eg reminders of a closing time or the valuation of an offer). Such advertisements must avoid arguments or invective
(iv) Advertisements including preliminary or interim results and their accompanying statement, provided you do not use the latter for argument or invective concerning the offer.
(v) Advertisements giving information, the publication of which by advertisement is required or specifically permitted by the Stock Exchange.
(vi) Advertisements communicating information relevant to holders of bearer securities.
(vii) Advertisements comprising a tender offer under SARs (substantial acquisition of shares)
(viii) Advertisements which are notices relating to court schemes.
(ix) Advertisements published with the specific prior consent of the panel.
In every case the Stock Exchange and the panel must be supplied with the final text of the advertisements at the same time as they are given to the newspapers.
Curtis Fox is director of investor relations at Edelman Financial.