A very long engagement

Mergers and acquisitions represent high points of a communicator’s career



Everybody enjoys a celebrity wedding. They legitimise our need to indulge in speculation, gossip and feverish media coverage.

One recent example ticks all the boxes: “Deutsche Börse, NYSE Agree to Historic Merger” (Reuters, February 15; “Merger mania: Frankfurt borse eyes heart of capitalism” (Sydney Morning Herald, February 10); and “Deutsche Börse Group To Merge With NYSE, Create World’s Largest Exchange” (Huffington Post, February 10). Headlines like these have dominated the financial press since news of a proposed merger between Frankfurt-based stock exchange Deutsche Börse and NYSE Euronext, the operator of the New York stock exchange.

To become better partners for their globalised clients, Deutsche Börse and NYSE Euronext have joined a growing list of stock exchanges that are taking advantage of changing European regulations and entering into global merger talks. The UK’s Daily Telegraph calls it a “race for repositioning”. Alongside DB and NYSE, 2011 saw merger talks between the London Stock Exchange and Toronto’s TSX, as well as Singapore’s SGX and Australia’s ASX.

When six of the biggest players in an industry are all looking to merge, the entire European business landscape will need to be reconfigured.  Job creation and job cuts, new companies and brands, new revenues and an altered market are all implied by this special transaction, a transaction that represents a life-changing watershed for a company. It also puts immense pressure on the company’s communications function, and so Communication Director decided to investigate the many roles that are demanded of the communicator through this dramatic process.

First steps

The first phase of the deal leads up to the signing of the business combination agreement, effectively the moment that the intention to merge is made public. This phase of the journey will be lead by the executive board, who approach their own shareholders as well as the board of the other company and persuade them of their vision and win their approval for the deal.

The communications function plays a key role, not least in establishing the compatibility of the two companies. Cultural similarities and dissimilarities – organisational as well as national – can ease or hinder the execution of a merger or an acquisition; after all, merging companies not only combine their businesses but also their separate organisational cultures. According to a report by strategy consultants Roland Berger, cultural knowledge is one of the five key success factors in mergers and acquisitions. In New Opportunities for Strategic Acquisitions, they write that “successful European M&A players attach great importance to ‘cultural fit’ from the earliest days of their deliberations”.

The definition of what constitutes a cultural fit will vary. Caterina Moschieri is an assistant professor of strategic management at Madrid’s Instituto de Empresa. She told Communication Director that “multinational companies tend to prefer wholly-owned modes of entry (termed ‘greenfield’ investments) when the culture of the host country is similar to their own, while they opt for shared ownership arrangements (e.g. alliances and joint ventures) under the opposite circumstances”. When targeting an overseas company, Moschierie recommends the CAGE (Cultural, Administrative, Geographic and Economic) model to measure the distance between the two companies.

Another key role is assisting with the drawing up of the opening salvo. In her interview, beginning on page 46, Marianne Amssoms speaks of her work at Belgian brewing company InBev in formulating the initial unsolicited bid letter addressed to the shareholders of US beer company Anheuser-Busch. Extensive scenario planning and a cross-functional working arrangement (born of InBev’s chequered history in mergers and acquisitions) helped create a firm offer that also addressed the manifold concerns and non-business issues that attend any such complicated transaction.

This is also the time to draw up your communications plan for the future, as Juan Francisco Polo (director of communication and corporate responsibility at Spanish transport company Ferrovial) did in the build up to Ferrovial’s December 2009 reacquisition of one of its subsidiaries, Cintra. “Prior to the merger”, he said, “a communication plan emphasising the financial and operational benefits for the companies and their shareholders, clients and employees was devised.” His plan also painted the future in rosy colours: “The second phase of communications focused on the operational advantages and synergies produced for the new Ferrovial, after the merger with Cintra”. 

Letting employees in on the picture during this early phase is a complicated proposition. A study conducted by David Schweiger of the University of South Carolina and Angelo S. Denisi at Rutgers University, and reported on in an article in the Academy of Management Journal, evaluated the impact on workers of being provided with a realistic merger preview. They found that being appraised in advance of a pending merger results in reduced dysfunctional outcomes for the organisations involved. However, disclosure of sensitive information while the deal is under development could backfire, and at this stage the terms of the agreement are clouded in ambiguity.

But as soon as the deal is signed communications in cooperation with human resources should have a comprehensive plan at hand of how to present the deal to the employees, who, after all, should be regarded by both parties as an invaluable asset. Striking the wrong tone could result in an unstable work force, an undesirable state of affairs so soon after the deal is sealed.

Second phase

Once the agreement has been signed by the other company it is time to convince everyone else of the value of the transaction, internally and externally. This phase must surely represent the pinnacle of any corporate communicator’s career, with a range of roles required in the process and an unparalleled cross-functional reach. Communications will be responsible for the timeline of the deal, planning documents and coordination exercises.

Communications will be called on to arrange events such as road shows, develop advertising campaigns and organise stakeholder conversations, including one on one meetings and investor talks (working here in conjunction with the investor relations department). They must also secure political influence and engage in ongoing dialogue with opinion makers relevant to the market, particularly those in a position to oppose the deal on whatever grounds. They could be political groups concerned with the knock-on effect of a takeover or the various unions involved who are determined to uphold their members’ interests (and who, just to complicate matters further, may have conflicting priorities).

Along the way, outsider help will be engaged. There is a long list of financial and legal advisers who specialise in mergers and acquisitions and offer extra manpower at a time when even the biggest communications department reach their maximum level of capacity. Advisory firms are in special demand in international cases, where on the ground support and first-hand knowledge of new markets are valuable.

There is also another, less measurable benefit to hiring expert outsiders: in the words of Paul Argenti and Janis Foreman, writing in The Power of Corporate Communications (McGraw Hill, 2002), they can also provide “the cool-headed perspective and impartiality needed when internal politics heat up and steer sessions in ways that benefit the interest of particular factions or individuals at the expense of the overall good to the company.”

Open dialogue

Internal engagement should be embarked upon in close collaboration with human resources, and the goal should be to manage, if not reduce, the ambiguity that inevitably accompanies a change of this magnitude. Ambiguity fosters fear and fear negatively affects share prices and the potential for success. The trick is to recognise the specific issues that are relevant to various interested parties and that may not be as immediately apparent to, or uppermost in the minds of, the management.

Annette Risberg is an associate professor in the department of intercultural communication and management at the Copenhagen Business School. She researches critical organisational and behavioural perspectives in mergers and acquisitions, and she explained to Communication Director the kind of miscommunication that can plague the transaction process. “[Employees] are often occupied with, and try to make sense of, very specific issues that are only relevant for them or for their department”, she said. “If these issues are not addressed by the management – who mostly focus on general and organisational overall issues – they may feel neglected and then experience a lack of communication. Thus, what happens is not that there is a lack of communication, but that the communication taking place does not address the department or person-specific issues.”

Her view is that constant engagement and transparency is the answer. “One way to avoid this could be to provide opportunities for employees to ask questions whenever they want, or, even better, to inform middle managers as soon as possible so that they can keep their employees informed.”

Withholding information?

Complicating the communications task in this crucial phase is the degree to which important information can be conveyed, and who should be privy to what knowledge. Messages must be balanced between consistency and being tailored to the various audiences. In the course of a merger management, those ‘in the know’ will have a very different set of expectations and views than employees on the ground.

Communicators must somehow honour both these perspectives. Ivo Lingnau is managing director at the Frankfurt office of FTI Consulting, a global consultancy. Speaking to Communication Director, he summed up his advice to corporate communicators: “Following on from a very detailed strategy discussion in the boardroom, you then have to bring it out in a more digestible way for the employees.”

Empowering middle management to converse with their teams about the process is important here, according to Lingnau: “One shouldn’t underestimate the importance of making sure that middle management is well equipped for dealing with their internal communications responsibilities, because they are the ones who people first turn to. People obviously don’t ring up the CEO to ask their questions, they walk into their boss’s office.”

Revealing information is also subject to timing: as mentioned earlier, the first stage of the transaction is by necessity shrouded in secrecy. To reassure employees, Lingnau recommends setting up a timeline of revelations promising light at the end of the tunnel. “If you can’t answer all the questions employees might already have early in the process”, he said, “then it’s important that you have relevant holding statements and also have clear expectations management when people can expect to get more detailed information on the timeline.”

Close liaisons with the communications department at the other company should be established in order to draw up a mutually-beneficial and consistent communications plan. Constituents of both companies should not feel that their opposites are privy to more or better information than they receive: this will only lead to a residual bitterness or a sense of enmity.

Regulatory phase

Approval must be won from several different antitrust authorities of varying importance. In Deutsche Börse’s case, the two most important European authorities are the Directorate General for Competition in Brussels and the Hessian Ministry of Economics in Wiesbaden. You would be forgiven for thinking that the regulatory phase of the deal is largely out of the hands of the company, but the need for communications at this juncture is as strong as ever.

The European Commission has submitted a 175-page questionnaire to Deutsche Börse’s customers and rivals in its ongoing evaluation, and although direct lobbying is frowned upon, companies can seek to influence media coverage in their favour. Positive headlines in business papers can contribute to the general atmosphere within which politicians and legislators are expected to come to their decision. And you can rest assured that opponents to the deal will take this opportunity to press their case through the media, as recent headlines about the Deutsche Börse deal will confirm: “LSE attacks planned D Börse-NYSE Euronext merger”, said the Financial Times on July 26, while on July 28 Bloomsberg ran with “Deutsche Börse-NYSE Merger Threatens Competition, AFME Tells EU”. The final round of regulatory deliberations are expected to last until the end of 2011.

Final phase 

Should the deal be given the green light, then communications must launch their post-merger strategy. Following the intensity of the negotiations and announcement period, there is a danger of relaxing into a state of complacency. But the integration phase is the most prolonged and critical and determines whether the envisioned goals of the merger will be realised.

Depending on the deal, integration will take on a lower priority. If a deal results in the creation of a new entity led by a holding company in a third-party neutral country (as in the case of the Deutsche Börse–NYSE Euronext deal), cohesive integration may not be desirable or possible. This could also be true in the case of international acquisitions of beloved and highly emotive national icons, where the decision to leave well alone requires limited cultural change.

However, it is imperative that communications embrace the new post-merger reality. Not least because the media will keep a hawk-eyed look out for any signs of potential cracks. “Here are 12 reasons why the AOL-Huffington post merger is going down in flames”, crowed a headline on the Business Insider website. In this issue, Dani Meyer of Danone writes about her company’s approach to welcoming new employees and encouraging people to get to know each other. Communicators should work closely with their counterparts in human resources to develop communications on benefits, retirement, severance, incentives and so on.

Corporate advertising

External expectations and assumptions about the new company must be carefully managed. For example, large post-merger companies face negative associations of their bloated, unwieldy size, and are often seen as corporate monoliths created for the benefit of rapacious stockholders and of no real benefit to anyone else.

In The Power of Corporate Communications, Argenti and Foreman single out Pfizer as a case study illustrating how such assumptions can be successfully negated. “The new Pfizer – a merger of two pharmaceutical giants Pfizer and Warner-Lambert in June 2000 – seems to have anticipated the negative response to its increased size and turned this stereotype on its head by emphasising the advantages of size, the company’s larger commitments to R&D, the range and depth of its products, and the growth of its global marketing capabilities.” Pfizer’s advertising cleverly communicated new benefits to both its customers and its investors. “To create a better world, we’ve created an even better company” ran one glowing advertisement.

New company, new voice

The post-merger state of affairs should see a new lease of life for the communications department. According to Andrew McCallum, director of communications and external affairs at Gatwick Airport, this was the case following the sale of the airport by BAA (itself owned by Ferrovial) to Global Infrastructure Partners. “Our communication approach is much more proactive and challenging under our new ownership”, he said. “We have established a voice for Gatwick that didn’t exist while it was part of BAA, a voice in the media, a voice on political and policy matters and a voice in the broader aviation industry.”

The opportunity for rebranding following a merger or acquisition is the most visible sign of a new direction. In this issue, Johan Almquist of Electrolux writes about his company’s rebranding efforts, particularly following acquisitions in Brazil. In the case of Gatwick airport, their post-acquisition branding influenced the very way in which they communicate. McCallum described his company’s ‘Your London Airport’ strapline as central to their new voice, going “way beyond the logo and identity, and [it] is much more about the tone and style of our communications. One example is the way we’ve embraced innovative social media tools in our communication with passengers and stakeholders.”

Gatwick’s example reminds us that, in the post-merger phase, just as in the build up to the signing of the deal, success is dependent on communications. Time will tell how the new company born of the Deutsche Börse and NYSE Euronext’s merger will leverage their communications.