CorpComms Magazine

Hostile bids used to be as rare as a smile from Gordon Brown. But the growing importance of private equity and battered stock market valuations mean a raft of unsolicited approaches have hit the headlines this year. Companies as diverse as search engine Yahoo!, mining group Rio Tinto, brewers Scottish & Newcastle and Newbury Racecourse have found themselves under attack from unwanted predators.

A handful of CEOs and chairmen might suffer a similar indignity to Sir Rocco Forte, who was famously out shooting when an unexpected attack was launched on his eponymous hotel chain in 1995. In general, however, most get informed of their bidder's intentions before the announcement hits the stock exchange screens.

How the target should react, though, depends upon the terms of the approach. 'If the bid is entirely cash, it is usually a question of simply making sure the price offered is appropriate and fair,' says Angus Maitland, chairman of financial PR consultancy Maitland.

It is inappropriate to fight a cash bid with promises of what the incumbent management will do in future to improve shareholder value. 'Fighting cash is difficult,' concedes Michael Sandler, chairman of Hudson Sandler, the City consultancy. 'It is a question of whether it is worth having the cash now or waiting.'

When the offer comprises cash and shares elements or just shares, however, it becomes necessary to fight back by reinforcing the credentials of the current management team. This team has to be able to persuade external stakeholders that, in the longer term, the company is better off in its hands than in the grubby paws of the unwanted interloper.

Swift response

John Antcliffe, chairman of Smithfield, the financial PR consultancy, believes it is imperative for the firm under attack to get a response out as soon as possible. The first announcement to the Regulatory News Service, which is managed by the London Stock Exchange, should inform shareholders the target has noted the interest of the predator and recommend that investors take no action until they have been advised otherwise.

This announcement should emerge within minutes of the hostile predator's announcement. Assuming the chairman or chief executive was alerted to the imminent attack prior to the stock exchange opening, that should not prove problematic. The communications team, board and financial advisers should be primed and waiting.

But if the attack comes without warning, it can lead to chaos within an organisation as investors, staff and journalists all learn simultaneously of the impending battle. As with all crisis management strategies, advance planning is vital. To prevent chaos ensuing, communications experts such as Maitland recommend that companies have a strategy in place for just such an event.

This plan should include draft releases, which can be updated and sent to the stock exchange at a moment's notice, and the mobile phone numbers of all advisers and key contacts, including journalists.

Maitland also believes external financial PR advisers are a wise investment. 'An in-house communications specialist might deal with a hostile bid once in his working life,' he explains. 'PR advisers will have much more experience.'

Within hours of the first announcement, the target company should release a second statement (drawn up in conjunction with its financial advisers) that challenges the financial merits of the bid. Even if the company ultimately ends up in the enemy's hands, it is important to come out fighting; an opening offer is rarely a closing one.

Bargain hunting

Companies tend to come under attack when bidders think they are cheap. For example, a firm may be seen as cheap because there have been internal problems, which the board now believes can be fixed, or because the market does not understand its long-term potential. In either example, the board should be able to emphasise its long-term strategy to unlock the company's true value.

'A hostile bidder spends many months preparing for this moment,' says Maitland. 'It knows exactly what it is doing. It would likely call the chairman at 6.30 am to declare its intentions, put an announcement out at 7.00 am, hold an analysts' meeting at 9.00 am and a press conference at 11.00 am.'

This gives the target company time to gather its thoughts and prepare for battle, but Antcliffe claims it is vital that outsiders do not see a board that is either shocked or rattled. 'The board maywell be responding on the fly but it is important it does not look too spooked by the bid,' he adds. 'First impressions are often the ones that last; the board should not be seen as being on the back foot. And all responses should be carefully thought through - if they are seen as weak, it can be damaging to the defence.'

Making contact with investors early on is crucial. Major shareholders should be contacted on the day of the announcement, but a series of visits by the chairman, chief executive or finance director should be organised swiftly.

Non-executive directors should come to the fore, as they are perceived as independent personnel. As one PR consultant says: 'There is a vested interest for a CEO to keep the firm out of enemy hands, irrespective of whether the hostile offer is in the best interests of shareholders. Communication directors, who represent the company to external parties, should be aware of this. Investors certainly are.'

Stout defence

Not so long ago blue-chip companies could rely on investors to follow their guidance. It was rare for major shareholders of the company under attack to go against the wishes of its board. Indeed, when Mercury Asset Management (then Britain's leading fund management group and now part of Blackrock) backed Granada in its hostile bid for Forte, it was so radical that Mercury's boss, Carol Galley, earned the moniker 'Ice Maiden'.

Today, however, institutional shareholders often sell out at the start of a takeover battle to hedge funds, which are traditionally interested in short-term gains and unlikely to be influenced by any communications discussing long-term goals and strategies.

'The defence strategy depends upon persuading shareholders they are better off staying with the current management than going with that of the company launching the hostile bid,' says Maitland. 'The success of this depends on the shareholders' viewpoint, which can change quickly when hedge funds get involved.'

A strong initial defence can actually thwart the hostile bidder's ambitions. If shareholders rally round and come out in support of the beleaguered company, it can unsettle the oppressor. Many companies flirt with takeovers without launching a real bid, and if the strength of opposition overwhelms them, they might withdraw without formalising the terms of their deal. If a bidder withdraws from the fight, it cannot return to the arena for a second attack for at least one year.

Sandler, however, believes it is possible to fend off a hostile bid if the company under attack holds its nerve and communicates its future strategy confidently and effectively. He recently helped Newbury Racecourse to successfully thwart an unsolicited £34.6 mn bid from Guinness Peat Group, even though the active investor had built up a stake in excess of 27 percent in the racecourse.

Newbury, home to the Hennessy Cognac Gold Cup, sought independent advice on the value of its assets, and claimed Guinness Peat's 'opportunistic and unwelcome offer' significantly undervalued the company and its potential. It also released a bullish trading statement as part of its defence. Just 5.5 percent of its shareholders backed Guinness Peat Group.

'In many ways, the Takeover Panel's timetable (see opposite) favours the bidder, as it gets the final say,' Sandler adds. 'It puts out its last offer on day 45, but the latest date the target firm can put out information is day 38.'

This makes it vital for all communication from the target company to be relevant and considered. There may be many hostile bids in the marketplace but it doesn't necessarily follow that there will be many successful ones.

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