Insight

Regardless of whether you believe your company could one day become the target of a hostile takeover bid, it's never too soon to prepare.

Although the markets have staged a bit of a comeback from recessionary levels, "When stocks sell for well below their peak prices, more companies find themselves in the crosshairs for unsolicited takeover bids," say M&A attorneys Frank Aquila and Samantha Lipton from Sullivan & Cromwell, in Practical Law (The Journal).

Icahn and Lions Gate; Kraft and Cadbury; Sanofi and Genzyme: these well publicized battles help illustrate the current appetite for takeovers.

While this blog post will not help you make a decision about whether a takeover bid is the right move for your company and its shareholders, it should help you avoid some common pitfalls of being caught unprepared.

According to Aquila and Lipton, and based on our own experience at PondelWilkinson and with numerous client companies, boards should have fundamental plans in place to "lay the groundwork for an appropriate response" long before an unsolicited bid surfaces. Among basic steps: 

1.     Be alert to potential hostile situations from existing shareholders, particularly those that have increased their positions.

2.     Know your shareholders and their histories.

3.     Engage with your largest shareholders, and foster open dialog.

4.     Review your company's current defensive stance and strategic plan. 

5.     Look at change-in-control restrictions and financial alternatives. 

6.     Assemble a team from a wide range of disciplines, not only to ensure you have a full understanding of current legal, regulatory and market developments in M&A, but to ensure you have process in place to evaluate the situation calmly and unemotionally.  The team, which should include key company officers, legal counsel, a financial advisor, and an investor relations firm, can be called to action immediately after a questionable inquiry is made and certainly if a bid is received.

Being prepared will allow you to respond quickly and decisively in the event of a takeover bid, which will, ultimately, instill shareholder confidence and help you achieve the company's long- term objectives.

 -- Laurie Berman, lberman@pondel.com

At home, our family has a plan for when the big one comes.  The emergency earthquake backpack is filled with the necessities:  We have extra water, our First Aid kit is complete and there is a hidden stash of cash.  We are debating whether to buy a small utility generator.

The very definition of a crisis means that it is not planned.  But that does not mean that we should not have a plan to guide us in the event of a crisis.

A recent article in The New York Times devoted a lot of ink to reviewing how companies deal with a crisis, and used three timely examples to represent how NOT to handle things.  In the story, Goldman Sachs, Toyota and BP were all slayed for their missteps and PR luminaries espoused their opinions and advice.  While the merits of each approach could be debated for some time, my general takeaway is this:  Have a crisis plan in place. 

Create the plan now.  Don't wait.  Make it thorough and review it every six months for any necessary updates.  It's not as daunting as it might seem, and it is one of the best investments a company can make.  Every company has employees, customers and shareholders that expect quick, decisive, informed and coordinated leadership in a crisis.  A ready-made plan provides a sound blueprint for action. 

Let us know how we can help.  In the meantime, I'm off to Home Depot for that generator.  You just never know.

-- Rob Whetstone, rwhetstone@pondel.com

With more than a month since the Dodd-Frank Act was approved and signed in to law by President Obama, the interpretative dust is beginning to settle. 

According to Skadden Arps, The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 affects almost every aspect of the U.S. financial services industry.  Its goal is to restore public confidence in the financial system and prevent another financial meltdown.  Put simply, it significantly increases regulation.

But, from a practical standpoint, what does it really mean?

Among other things, regulators will have the authority to take control of and liquidate troubled financial firms if their failure would “pose a significant risk to the financial stability of the United States.”  The Federal Reserve will have the authority to extend credit in “unusual and exigent circumstances.” 

Most important from a public company standpoint, the SEC’s enforcement program will be enhanced, disclosure of executive compensation will become mandatory, and shareholders will have the right to a “say-on-pay” vote on executive compensation.

SEC Enforcement

New SEC enforcement programs will effectively “increase the flow of enforcement tips from potentially knowledgeable insiders.”  Skadden Arps recommends “robust compliance and self-evaluative programs for all entities that are subject to SEC regulation.”  The Act also expands the SEC’s authority to bring enforcement actions against those who aid and abet violations of the securities laws.

Corporate Governance

One likely outcome of the Dodd-Frank Act is increased contesting of annual director elections.  Activist investors will have more leverage to pressure companies to take short-term-focused actions rather than allow boards to focus on the long term.  Skadden Arps notes that this could keep qualified directors from continuing to serve on public company boards.  In keeping with PondelWilkinson’s view of investor communications, public companies should work to increase engagement with shareholders now, to develop and maintain long-term, mutually beneficial relationships.

Cravath, Swaine & Moore notes that public companies will also need to disclose in their annual proxy statements the reasons why the positions of chief executive officer and chairman are filled by the same person or by different people (although the SEC has already adopted rules requiring this disclosure).  In a follow on to last year’s New York Stock Exchange ruling, which eliminated broker discretionary voting with regard to director elections, the Act also prohibits broker discretionary voting with regard to shareholder votes on executive compensation matters.

Executive Compensation (Say on Pay)

During a recent speech, SEC Chairman Mary L. Schapiro said that investors’ “concerns must be addressed to fully modernize our system and ensure that our markets continue to foster capital formation and serve as an efficient engine for turning savings into jobs and economic growth.  And, I believe that the recently-enacted regulatory modernization legislation goes a long way to addressing them."

-- Laurie Berman, lberman@pondel.com

This past weekend, Hewlett Packard’s head honcho Mark Hurd abruptly resigned as CEO of the world’s largest technology firm, amid a firestorm of controversy involving actress-turned-marketing consultant Jodi Fisher. Surprisingly, it’s not Fisher’s 2007 sexual harassment case against Hurd that led to his ouster; it was filing faulty expense reports.

Following news of Hurd’s resignation, H-P’s stock has lost more than eight percent of its value. In his five plus years as CEO, Hurd restored H-P to profitability, more than doubling the stock, mostly due to his no-nonsense approach to business.

Hurd’s predecessor Carly Fiorina, now a candidate for the U.S. Senate, also was ousted by the company’s board.  Fiorina’s departure, however, was tied to poor performance, a long-standing issue while she was CEO, and primarily due to her inability to fully leverage the company’s acquisition of Compaq in 2002.

The trick now for H-P is to find a successor to Hurd, and the challenge is managing the transition with effective communications.   Could H-P’s recent stock drop have been mitigated with a better communications plan?  That’s debatable.  Hurd had a positive influence on the company’s performance.  

Indeed, it’s hard for any organization to manage a crisis, and strategic public relations is essential in these matters, especially when a company has to communicate contentious news to its constituencies, i.e. investors, employees, and the general public.  Even a tactful tweet can go a long way, but it has to be smart and sincere. We’ll see how H-P investors react when the company reports on August 19.

-- George Medici, gmedici@pondel.com

PondelWilkinson is attending the National Investor Relations Institute's annual meeting in San Diego. Tune in to our Twitter feed to learn what's going on with new governance requirements, changing markets and ever-evolving media.

BP’s future seems pretty bleak at the moment.  The stock hit another low this week as the company’s latest effort failed to stop the massive oil leak, which continues to spew millions of gallons of crude into the Gulf of Mexico, severely impacting the Louisiana coastline.

Making matters worse, BP boycotts are underway coupled with an onslaught of lawsuits and fines that undoubtedly will cost the company tens of billions of dollars.   

Can BP ever recover? Some on the street say no and that the political, economic and environmental fallout from the disaster will be too tough to overcome.  Media pundits have even compared the crisis with the Arthur Anderson scandal of 2002, when the company surrendered its license because it was found guilty of criminal charges for its auditing of Enron.

No doubt BP will become a heavily studied case history among B-schools for years to come.  It’s important, however, to understand the dynamic between the company’s crisis communications efforts and its stock price, which dropped more than 30% since the April 20 explosion of drilling rig Deepwater Horizon, killing 11 workers. 

No question the fact that they still can’t plug the hole is a key reason for the stock drop.  But by how much? Will the boycott hurt business?  Sure it will. Will that affect profits?  Of course.  Could a boycott be prevented?  Probably, but only if BP communicates more strongly and frequently about its repair efforts.  There has been some apprehension, at least on BP’s part, to get out in front of the problem and be more open in public statements.  This only invites public anger, which leads to a consumer backlash that can, in fact, result in a boycott.        

BP will never get a handle on the crisis until the leak is stopped.  Only then can it begin to attempt to rebuild its brand among investor and consumer audiences.  In the interim, BP’s investor and public relations divisions need to work in unison, making sure key messages are tailored appropriately and communicated effectively (and regularly)  to each of its core audiences.  Understanding the needs of different target audiences creates a stronger overall messaging platform and allows for deeper dialogues between BP and its investors, as well as the media, which is paramount during a crisis.

-- George Medici, gmedici@pondel.com

Recently, I stumbled upon Tom Chambers’ “Five Things You Need to Know Before Dating a Journalist.” Chambers cuts right to the bone, capturing the mindset of many journalists using some, shall we say, colorful language. I know this because I was one before fleeing to the world of public and investor relations.

At this point in my career, I may not have to date them, but I certainly have to deal with them on a daily basis. I understand these creatures of media, and to help our clients understand them a little bit more, below are some of Chambers’ musings. 

1.       We can figure things out. Understand, we’re paid to dig deep, find the secrets and wade through *&%$#. We can pick up on subtleties, so what you think you are hiding from us won’t be hidden for long. … We spend all day separating fact from fiction, listening to PR cronies and dealing with slimy politicians. If you make us do the same with you, you’re just gonna piss us off.
 

2.       At some point, you will be a topic. Either through a feature story or an opinion column, something you do or say will be a subject. Get over it. Consider it a compliment, even if we’re arguing against you in print…
 

3.       Yes, we think we’re smarter than you. In fact, we know it. Does that smack of ego? Absolutely — but that confidence is what makes your heart go pitter-patter. … Guaranteed, when you say “towards,” we will automatically say “toward” — “towards” is not a word. We’re not trying to call you dumb (even though you don’t understand the English language), it’s habit. The same will happen when you say “anxious” when you mean “eager” and when you answer “good” when someone asks how you are doing.
 

4.       You’re not less important than the job — the job is just more important than anything else. One doesn’t become a journalist to sit in an office from 9 to 5 Monday through Friday. We do take our work home. If news is happening, we’ll drop whatever we’re doing — even if it’s with you — to cover it.
 

5.      You won’t be disappointed. Journalists are intense, driven, passionate folk. We carry those same attributes into our relationships, making it an extremely fun ride well worth the price of admission. … Our brains are a great resource. Ever go on a date with an attractive person and wind up wishing you hadn’t because everything they say is just, well, stupid? That’s not going to happen here.

-- Ron Neal, rneal@pondel.com

Well, it’s not exactly breaking news, but I recently came upon an interactive annual report/annual review that is worth sharing. 

In a recent interview with IR Magazine, Stanley Black & Decker’s director of investor relations, Kate White, says that she “wanted investors to see the 10K brought to life, to see the numbers and the charts and the graphs, and to see the people who really drive it all.  That’s what investors want time after time – to hear from the people who run the business day to day.”

The result is an informative, easy-to-watch and navigate review of 2009.  Although the review did not fully replace Stanley Black & Decker’s more formal, glossy annual report, it is a great reminder that during a time when it is increasingly difficult to gain mindshare from investors, it is never a bad idea to think outside the box and bring life to your company’s story.

If you’ve seen any other great examples of creativity in the field of investor relations, comment here and let us know.

-- Laurie Berman, lberman@pondel.com