When deals go wrong Article icon


To the out-of-breath, excitable media banker who had just caught the news as he rushed through London Bridge station, Rupert Murdoch's decision to shut the News of the World was 'a masterstroke', adding of the media baron he so greatly admires, 'the old boy has pulled it out of the bag again'.

But the banker was wrong. To the public and media, shutting the 168-year-old newspaper on 10 July was a ham-fisted attempt to draw a line under the phone hacking scandal that has embroiled the News of the World. It appeared to them that Murdoch's News Corporation empire and its UK newspaper subsidiary News International were making a gesture costing the jobs of 200 innocent employees in order to rescue one of the biggest media deals this century.

For more than a year, Murdoch had been trying to purchase the 60.9 per cent of BSkyB that he did not already own. The deal had been heavily attacked, with Murdoch's many critics arguing that his domination of the UK media landscape was already too great.

But he was getting close. Culture Secretary Jeremy Hunt had already indicated that he was minded to support the deal and final confirmation was expected before parliament's summer recess.

The phone hacking scandal, which dates back to 2006 when News of the World royal editor Clive Goodman and private investigator Glenn Mulcaire were arrested (they were later jailed), was always a factor against the deal.

But it became the dominant obstacle when it emerged that News of the World journalists had hacked the phone and even deleted the messages of murdered schoolgirl Milly Dowler, giving false hope to her family that the teenager may still be alive.

Despite Murdoch's 'masterstroke', within days of closing News of the World he was forced to accede to the public and political outcry and withdraw his £8 billion bid for the satellite broadcaster.

The dramatic move caught observers off guard, but experienced PR professionals have since expressed surprise at how badly the saga has been handled by News Corp. Other companies have seen proposed takeover deals go awry as a result of unexpected events, and could certainly have provided News Corp with a more coherent communications strategy.

BHP: important not core

Jonathan Hemus, founder of Insignia Communications, says that it is vital that a company does not suggest that a deal of any type is absolutely vital to its future. He argues: 'Communicate that it is significant, but not the only deal in town. First thing in the run-up to a deal is to say that it is part of a broader strategy, that the core business is strong and vibrant. By implication, if you don't say this then the future is uncertain if the deal fails.'

The reaction of much of the media to the BSkyB saga suggests this lesson was not followed by News Corp. For example, the Guardian, which led the way on the phone hacking scandal, claimed that if the deal was not done 'News Corp's global satellite strategy would look an uncoordinated mess'.

By contrast, BHP Billiton, led by chief executive Marius Kloppers, emerged from the mining company's failed bid for rival Rio Tinto with its reputation intact. The all-share hostile takeover would have been one of the biggest in corporate history, creating a $360 billion (£220 billion) mining behemoth.

As forceful as he was about the merits of the deal, Kloppers continued to highlight BHP's strengths. For example, in spring 2008 he called a press briefing just to point out how strong BHP's oil business was - even though it was then a relatively small, virtually unknown part of the company's portfolio - describing it as a 'super major'. He was sending a clear messaging. Winning Rio Tinto would be great for shareholders, but the group would still be powerful even if that deal failed.

The collapse of Lehman Brothers and the subsequent fall in the stock markets skewed the terms of the deal. It was now too costly; Kloppers pulled out arguing global events had 'altered risk dimensions'.

BHP Billiton's response follows the recommendation of one of the City's most senior PRs. 'The advice I broadly give in situations, like deals falling through, is to give a plausible rationale that avoids ridicule,' he counsels. 'You contextualise, point out changing market conditions, strategic importance of reassessing situations. It's like [the economist] John Maynard Keynes said: When the facts change, I change my mind.'

AIG: keeping your head

Tony Danaher, chairman at Financial Dynamics Corporate, warns that the biggest danger is that clients will 'hope for the best', but adds that it is far better to 'stay in control and not make a rash move in the heat of the moment'.

A senior industry colleague agrees, claiming that News Corp tried to 'localise the problem in the hope of avoiding contagion' to the rest of the Murdoch empire by closing the News of the World.

The board of American insurance group AIG offer a good example of the benefits of keeping a cool head in a tricky takeover situation. Two years ago AIG received a surprise $35.5 billion offer for its Asian life insurance assets from the UK's Prudential.

But the news was not welcomed by Prudential's shareholders, who perceived the offer as too generous and threatened to withdraw support for the $21 billion share issue necessary to fund the acquisition.

Their incalcitrant attitude forced Prudential to revise down its offer to the AIG board to $30.4 billion. Saved by government intervention in the wake of Lehman's collapse, AIG was under huge pressure to accept the less lucrative terms. But led by the redoubtable Robert Benmosche, AIG rejected Prudential's claim that it would be unable to raise as much by floating its Asian business and turned down the bid.

This proved to be a wise move: when AIG finally spun-off AIA on the Hong Kong Stock Exchange last October, shares promptly rose 17 per cent taking its market value above Prudential's original offer.

As Rod Clayton, head of issues and crisis communications at Weber Shandwick EMEA, points out, companies are ultimately 'judged on how they address the issue rather than the issue itself'. In the end, analysts ended up praising AIG's management for the successful flotation of the Asian business rather than criticising them.

BPF: playing the hero

Given Murdoch's billions and the scale of his empire, he was always likely to be portrayed as the villain. However, Cicero Consulting chief corporate counsel Iain Anderson argues that matters were made worse as News Corp was always responding to problems rather than anticipating them.

'This whole saga is a classic example of death by a thousand cuts,' he argues. 'Corporate decision-making and corporate communications elements were tweaked minute-by-minute and so there ceases to be a strategy. They should have backed away from BSkyB earlier.'

Andrew Teacher, former principal spokesman for the British Property Federation (BPF), agrees that attempts to anticipate problems must be made to mitigate any lasting harm. He says that PRs need to break up into several groups, so that some can understand the immediate problems and the others the long-term consequences of any decisions they make.

'You have teams looking at on-the-ground, tactical issues and a couple of people who can step back and advise on the wider context,' argues Teacher. 'They can look six to 12 months away and pre-judge the public mood rather than react to it.'

This was vital for salvaging money for BPF's client base of landlords two years ago when many high street retailers were struggling to pay their rents and insolvencies were commonplace. Teacher felt that it was important to ensure that landlords were positioned so that 'they were not the villains of the piece'.

The landlords could have forced retailers to pay up, which would have sent many well-known high street chains into administration. Instead the BPF got landlords to meet and talk to the chief executives of both these tenants and FTSE listed property developers, who need security in the rental market to justify the construction of their vast shopping centres.

For example, two years before Focus DIY went into administration, the do-it-yourself chain entered a company voluntary agreement (CVA) with the backing of its creditors, the majority of whom were its landlords. They accepted less money than they were owed, recouping some cash in the process, and the move, which was welcomed by the media as a pragmatic approach to helping the company through its financial difficulties, boosted the sector's image.

'We got landlords on the front foot a little,' says Teacher, meaning that, unlike News Corp with BSkyB, they had successfully anticipated the public mood by not getting tough with their debtors.

Surviving poison

A well-known financial PR adviser, who once successfully floated a company even after it had been accused of making several thousand people ill, contrasts News Corp's failings with the rescue of the Perrier brand.

In February 1990, traces of carcinogenic benzene were discovered in Perrier bottles in America and, even though the US Food and Drug Administration showed there was no real risk to consumers, the purity of the brand was attacked by the media. This was clearly a disaster for a brand whose identity advertising slogan was then It's perfect, it's Perrier.

Initially Perrier floundered, and there was a lack of a coherent and cohesive response from the company. The media received incorrect information, and statements appeared contradictory. But within a week, Perrier made the decision to recall 160 million bottles of water worldwide, worth around $70 million before taxes. (The announcement immediately knocked 16.5 per cent off its share price.)

The company then planned a two-pronged $25 million strategy to return to the marketplace. Within a month, Perrier launched a radio and television advertising campaign to explain the problem, detail its response and to reassure consumers that it had now been resolved. The second phase involved relaunching Perrier in June 1990, with a campaign that included tasting events and free samples. 'The basic principle here is that you find out the truth very quickly and present it accurately,' says the adviser. 'The problems that become toxic are those like News International. Perrier was very upfront, very fast.'

For years, News International and the wider Murdoch empire have apparently failed to identify the extent of the hacking problem. A more incisive, organised investigation would have identified those difficulties sooner and therefore the clean-up operation would have been that much more effective.

'They [management] ought to have been able to see the problem, but the culture and practice of the place has meant that News International hasn't,' he sighs. 'In these situations, you find total dysfunctionality, too many people with too little clarity of events.'

Speaking shortly after 80-year-old Rupert Murdoch's appearance in front of the Culture, Media & Sport Select Committee alongside son James in July, the communicator has reached the conclusion that there is only one, drastic solution. 'Rupert has shown himself to not be the man he was five or 10 years ago,' he says. 'Rupert does not seem to know the business as he once did, I would push him up to president [of News Corp, from chairman and chief executive].'

BSkyB: the future

One high-profile banker believes that the Murdochs' appearance at the select committee has 'at least drawn some of the sting out of the inquiry'. But even he believes that News Corp will struggle to get another BSkyB bid together until after the next general election, as only then will 'the dust have settled'.

Put simply, News Corp's offer for BSkyB and how the company dealt with the problems that derailed the deal is now a template of what not to do in similar corporate situations.