When leaks cause issues
What is the appropriate response from a company when its proposed merger or acquisition is leaked to the media?
When the inevitable happened and the supposedly secret attempt by Warren Buffett’s Kraft Heinz to snap up Ben and Jerry’s maker Unilever leaked via Financial Times Alphaville, the British company was ready to fight off the hostile approach.
Within an hour, a statement was issued confirming the approach and was followed with a tough stance by Unilever deriding Heinz’s attempts as woefully undervaluing its potential.
Politicians were wheeled out to tell the country that another darling of UK plc should not fall into foreign hands, and Unilever bosses started proactively explaining to shareholders and journalists that, yes, they had been slack of late, but they had plans to improve things.
Heinz, seemingly caught out, subsequently backed down and Unilever made good its promise by thanking shareholders and starting a review, which has since led to the mooted sale of some of its biggest brands such as Flora.
But it could have all been so different, if Unilever’s communications team had not pushed all the right buttons and properly prepared for a potential leak, because, with literally hundreds of bankers, advisors and managers involved in an M&A deal, the likelihood of it staying secret can be next to impossible.
So, how can the corporate comms director prepare for an inevitable leak? How should chief executives be reassured? What tactics should a company employ when the media come knocking? And if a hostile takeover situation is leaked – what can press teams do to ward off marauding predators?
Leaks have been around as long as journalism. Business editors on Sunday newspapers would wait for the so-called Friday night drop, where a company would leak details of a possible merger, wait for the Sunday papers to report it, and issue an update to the stock market on a Monday. The idea being that if all hell broke loose on the Sunday, with investors bombarding the company’s chairman to complain about the potential deal over breakfast from their country retreats, the company has enough wiggle room to announce on the Monday that, yes, they had been looking but ‘it’s early days’ and ‘nothing is set in stone’.
It also kept the Sunday newspapers happy and more likely to give the potential deal a good hearing, as City editors hoped for more leaks in the future.
There are also the unplanned leaks – usually from gossipy bankers, keen to show off to journalistic contacts over a bottle of fine wine in one of the many watering holes and restaurants in Mayfair. These can be a nightmare for companies and communications teams, because they can be caught off guard, and not ready to announce publicly and start the official takeover process set by the Takeover Panel.
Private equity houses were always very gossipy, saying who they’d looked at buying, and would use that as a way to force momentum behind a sale process happening, if it was being held up by intransigent management.
And lastly, there can be the leaks from companies fighting off a takeover, who are keen to whip up pressure against their rival to back off. These can typically be the most devastating kind of leak for a business wanting to eat up a competitor.
Alternatively, the leak might never come and the takeover can be smoothly announced to the London Stock Exchange like a well-oiled machine, with all sides hailing the months of secret talks as a huge success.
Two recent examples include Sainsbury’s buying Argos and Tesco’s takeover of Booker, which didn’t leak despite the supermarket’s non-executive Richard Cousins resigning months earlier because he disagreed with the deal.
The reason for his resignation did not become public until after the takeover was announced.
Jim Armitage, business editor of the Evening Standard, believes leaks are becoming less common as pressure on the media industry continues to be felt. He says: ‘There used to be a lot of leaks, particularly in the Sundays. But it doesn’t happen as much anymore and hard working journalists have to ferret it out instead.
‘Private equity houses were always very gossipy, saying who they’d looked at buying, and would use that as a way to force momentum behind a sale process happening, if it was being held up by intransigent management. There’s nothing like leaking to the papers to get the pressure for a deal to happen.
‘But with the cuts to the industry, it’s much harder for journalists to get out and make those contacts, especially when there’s so much pressure on them.’
He also points out: ‘Companies should know what the market is like. The leaks happen into the market nine times out of ten and the share price goes up, before getting picked up by journalists.’
But, although leaks may be less common, all comms directors appear to be in agreement that a leak strategy on a takeover or acquisition should be put in place early on in any discussions.
Claire Scicluna, head of communications for property firm Almacantar, says: ‘PRs should prepare for a leak from the start of the process. A leak strategy should cover how you might respond depending on the information disclosed, what ramifications a leak would mean to your staff, and of course if there are any regulatory obligations for the company.’
Michael Sandler, founder of financial PR firm Hudson Sandler, agrees and warns: ‘In my experience the leak when you most expect it doesn’t happen, and when you don’t expect it does happen.
‘With a merger or acquisition I would be more surprised if it didn’t leak than if it did. Typically, a deal is initially kept to eight people, then 16 people, and eventually 150 people are involved, so the more people involved the greater chance of a leak.
‘We always have a ‘leak statement’ prepared for the eventuality of a leak, because if we get a call from a journalist, we can’t ignore it because if one journalist has the information then another will no doubt get it too. The biggest problem is when the leak comes very early on in the discussion process. If it’s too early, it runs the risk of destabilising the whole deal.’
And if a leak does come early, as it appeared to do in the Unilever-Heinz battle, the company with the slickest communications operation has the best chance of coming out on top.
In fact, the Unilever leak may actually have benefitted the firm behind Flora and Dove, by catching Kraft Heinz off-guard; allowing momentum to build, particularly in the political sphere, for the deal to be shouted down.
Typically, a deal is initially kept to eight people, then 16 people, and eventually 150 people are involved, so the more people involved the greater chance of a leak
Politicians queued up to appear on TV to condemn the attempted raid by an overseas rival of ‘British’ brand Unilever (even though the company is actually Anglo-Dutch, earning the majority of its profits outside the UK and records its revenues in euros rather than pound sterling).
Playing the political angle for a company that is under attack from a foreign entity can be extremely advantageous, as can keeping your shareholders at the front of your mind.
Unilever handled this perfectly, initially issuing an aggressive statement against Kraft- Heinz, seemingly with the blessing of its shareholders. It swiftly followed this up by admitting more could be done within the business to plug the gaps its suitor thought could be more valuable.
Since Kraft-Heinz backed off, Unilever has now started looking at selling some of its brands, as it promised and basking in its new found position as a darling of UK plc.
However, Unilever also likely benefited from the simple fact that its predator was Kraft, a company whose past actions ultimately led to radical changes to Stock Exchange rules in the UK. It was back in 2010 that American-based Kraft spent four months stalking British chocolate maker Cadbury’s. Political outrage ensued and a desperate battle played out in public, with both sides endlessly briefing against each other to bring the other down.
Eventually, Kraft managed to persuade enough shareholders to sell up, and the £19.5 billion deal was passed, but not before breaking a series of promises and frustrating Parliament over the refusal of boss Irene Rosenfeld to appear before a select committee of MPs. This led to the new ‘put up or shut up’ rule, meaning once a potential takeover or merger has been made public, both sides have just 28 days to either make a firm offer or walk away (or ask for an extension in a friendly merger situation).
If they choose to walk away, no further bids can be made for at least six months. All of which were introduced to avoid the kind of instability created at Cadbury’s by Kraft over its four-month stalking.
There is tendency to feel pressure to respond immediately, but our first priority was ensuring the internal cascade had sprung into action and the right colleagues and agencies were firstly briefed
The new rules can have consequences – it means companies must rush through enormous amounts of details and bash out a deal, especially if a deal leaks early.
Hannah Collyer, head of group media relations at Dixons Carphone, explains how fast everything moved when talks between Dixons and Carphone first leaked before their eventual £3.8 billion merger. She says: ‘The DC merger was leaked very early on, when only a handful of internal people within each business were aware. We were lucky and had two genuinely friendly companies that were keen to proceed with the deal, so in our case it forced both sides’ hands and ultimately sped the process up. It was like going from a first date to planning the wedding.
‘Communication at this stage of an M&A is largely guided by the legal framework, so a simple reactive statement and effective briefing cascade was all we needed.’
Collyer also explains how best to handle an early leak and to avoid distracting temptations. ‘Typically, I was on holiday the day [financial journalist] Ben Harrington broke the story, so I became aware as my phone lit up with an array of calls,’ she says. ‘There is tendency to feel pressure to respond immediately, but our first priority was ensuring the internal cascade had sprung into action and the right colleagues and agencies were firstly briefed.
‘One of the many wonderful things about our merger is the brilliant leadership team it brought together and from a comms perspective, both sides were very pragmatic. It’s only natural to be curious about the source of a leak in a situation like this, but progressing the deal was without doubt the priority for everyone involved and coverage over the next 24 to 48 hours turned out to be very helpful, demonstrating there was real appetite in the market for the deal.’
Collyer, who was originally at Dixons, was also helped by having a laid back chief executive in the form of Seb James, who took the merger in his stride.
But what about less media-savvy bosses? Can they be kept calm during the eye of the M&A storm? Or is all hope lost?
Scicluna explains: ‘Leaks are always frustrating. They can cause problems during deal negotiations and for employees. However, PRs can make the situation easier by preparing their CEO for a leak, and by having a plan to place for how to react.’
Preparation for leaks – as was the case in the recent £11 billion merger talks between Aberdeen Asset Management and Standard Life, which were revealed by Sky News City editor Mark Kleinman on a Saturday morning – is key. In that particular tie up the companies took the unusual set of issuing a stock market update that Saturday evening, suggesting plans for a leak had been in place for some time.
The power of the press to get the mood of an M&A deal can also prove helpful, as both positive and negative reactions can be played out on the pages of newspapers, giving the companies a good overview of different views without having to get their own hands dirty.
Companies can do more to assist the press in getting their message across – when Pfizer tried to buy pharma rival AstraZeneca, journalists endlessly pestered the latter to come out fighting, playing the political card as a British company under attack from US rivals.
But, ultimately, businesses and boardrooms must try and worry less about the fear of a leak and more about how they will get the outcome from any M&A deal that best suits them and their shareholders. And that’s where a strong communications team can come into its own.
Collyer explains: ‘As comms professionals we can have a tendency to overly fear leak situations. In the case of the DC merger, it brought our businesses together even faster than originally planned, to deliver one of the most successful mergers in recent history.
‘My advice is to build a strong network of internal relationships and take the time early on to fully understand the merger process. Your legal department will be instrumental in guiding you through the intricacies and will form a robust sounding block, for what will undoubtedly be a very unique and rewarding experience for you personally.’
This article first appeared in issue 113