CorpComms Magazine

It's the deal of the century; a humdinger of a multi-billion pound takeover that transforms a company and changes the dynamic of the competitive landscape. Well, at least that's what the chief executive, chairman, board members and corporate communications team said when the acquisition was announced as a strategic game-changer.

A few weeks or months later when the deal has been abandoned, that hubristic talk looks none too clever. So is it possible to wind back the clock and tell stakeholders who you were at pains to convince earlier that the transaction was the only way forward for the group that, er, it was just one of a number of options and you're going back to your knitting? That's the knotty issue facing G4S, the security group forced to pull out of its announced £5.2 billion agreed deal to acquire Danish services company ISS late last month after overwhelming opposition from shareholders.

The deal would have seen G4S morph from a group relying on security for 80 per cent of revenues to one with 45 per cent coming from services, such as cleaning offices and washrooms, portering and catering.

It would also have made the group the world's second-largest private employer behind American supermarket giant Walmart and saddled the group with £3.7 billion of debt.

Perhaps it's no wonder then that G4S shares fell 22 per cent on the deal's announcement, with shareholders complaining that it would totally change the company from a safe security group to a risky, indebted services conglomerate. A few weeks later the deal was off.

Now the company has to assuage the continuing anger amongst shareholders and reassure them that it is perfectly content to carry on the gradual organic growth plan it had before.

Not an easy task but, while unusual, G4S's problem is not unique. Insurer Prudential had a similar task last year after being forced by shareholders to abandon its bold £24.4 billion attempt to swallow Asian insurer AIA.

Mining giant BHP Billiton, meanwhile, has called off three major deals in as many years, throwing in the towel last year on a $38.6 billion (£25 billion) bid for Canada's Potash Corporation after earlier withdrawing from a hostile mega-bid for fellow miner Rio Tinto and being forced by European regulators to drop a proposed major joint venture with Rio to mine iron ore in Australia.

Such failures can be highly expensive in terms of financial cost, as well as reputation. G4S's bill for its abortive takeover is £50 million, while Prudential ran up £377 million in break fees and costs.

And while G4S chief executive Nick Buckles, BHP boss Marius Kloppers and Prudential head Tidjane Thiam are all still in their jobs, unsuccessful takeover attempts often claim executive blood too. So what should communicators do when M&A turns into misery and anguish?

Responsibility?

The problem, of course, is that after the collapse of deals so large that most companies normally only do one every decade, communicators are starting at a disadvantage that may be partly their fault. 'As the fabled Irishman in many a joke says I wouldn't start from here,' comments Neil Bennett, chief executive of financial and corporate communications agency Maitland. 'I would clearly not leave it so long before going to talk with institutional shareholders.

There are deep wounds here because G4S should have been telling them something and was not. The core of this failed deal is a breakdown in communications between the company and its shareholders and that's the company's fault because it is its job to communicate effectively.' Anthony Cardew, chairman of financial and corporate communications consultancy Cardew Group, agrees. 'The absolutely basic thing that you have to do in this situation is to communicate everything to the market,' he says. 'As things develop you have to keep everyone: shareholders, banks and regulators, informed. At the first point that something seems to go wrong you have to say Something seems to be going wrong and we are letting you know.

What you do not want is any surprises. The cardinal rule is that however bad the news, however difficult the situation, you have to make sure that all the relevant people are informed.'

G4S, however, does not accept that its takeover failed because of the way that it was communicated. 'It won't surprise you that I don't think that,' says director of media relations Adam Mynott. 'Clearly, we either did not handle communications properly or the strategy was wrong or the process was wrong because shareholders formed the view that this deal was not appropriate at this time. I am not in a position to be definitive about it but we feel that the process did not help.'

Specifically, Mynott says G4S was advised that it should only give 48 hours notice of the deal to the shareholders that it made insiders before making its announcement. G4S spoke either facetoface or on the phone to institutions accounting for about 30 per cent of the shares in this period, and some investors felt they were not given enough time to consider the full implications.

G4S's chief executive Buckles has stated that talking individually to 12 - 13 major shareholders over a couple of days meant that some shareholders were effectively given just an hour to consider the proposed deal.

However, Mynott feels that the subsequent communications with investors and media commentators have paved the way for the company to deepen its relationships and the general understanding of G4S in the future.

'We are not saying we were not at fault,' he continues. 'As an organisation we spent a lot of time going through the deal and the compelling logic behind it. We listened to investors we met on the roadshow.

'Some said they did not like the deal but they also told us that they did like the way we have grown the company organically and through acquisitions over the last seven years. They were very happy that we are going to be continuing that now and that's what we're going to go back to.'

John Sunnucks, partner at financial PR agency Tulchan Communications, which advised G4S on the deal, believes it will take time for the lessons to be learned. 'Everybody will be forming their opinions on what could have been done differently,' he says.

'There will be a collective look back by the board and management and probably a key focus will be on the pre-marketing process and how investors could have been given more time to take a view and communicate that to the board before the deal was launched. This is not the moment for quick judgments and knee-jerk reactions. The board will be listening very carefully to investors and will take it from there.'

Immediate lessons

Nevertheless, some lessons appear clear enough. James Henderson, managing director of financial public relations group Pelham Bell Pottinger, says important mistakes were made in the process of winning over investors. 'If it had been a publicly-quoted business they were taking over, you would have wanted some irrevocable commitments to support it,' he says. 'They could have one more to get shareholders behind it. Now, they have to get across the message that there's a big difference between investors not having confidence in Buckles as a chief executive and not agreeing with that particular part of the strategy. He needs to show he can understand the mistakes he made.'

Another insight is that the way that corporate communicators need to proceed following failed deals will rely to some degree on the history and culture of the company and the sort of investors it has attracted.

Prudential and G4S arguably suffered more than BHP in the aftermath of their failed deals, for example, because they had prudent reputations for building long-term value, whereas the mining group is well-known as an aggressive merger and acquisitions animal. BHP was therefore able to shrug off its failures as part and parcel of its modus operandi, while Prudential was making much more of a strategy switch, which needed to be unpicked when its deal unravelled

Quite how damaging G4S's foray into risky merger and acquisition activity will turn out will depend on how quickly the company can reassure stakeholders that it is back to business as usual. Not everyone is convinced, however and the year ahead promises to be a challenging one for the company and its communicators.

'The ISS deal was so off-strategy. There are lots of unanswered questions for G4S,' says Bennett. 'It never sounded particularly credible but now they have to dig themselves out of a hole.'

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