branding a key factor for m&a deals

Branding a key factor for merge & acquisitions deals


he Great Merger Movement" spanned a decade of major consolidations in the United States, from 1895 through 1905. A notion of its scale may be gained from the fact that companies acquired in mergers in 1900 were worth around 20% of GDP. More than a century later, unsurprisingly, Brazil is undergoing its own process of major consolidation. Whether this is just the beginning of it, or the middle, or the end, is not known. However, one thing is certain, from the perspective of the brands involved nothing will remain unchanged and as consumers we will have to get used to letting go. Several Varigs will vanish, many Telco’s will be transformed, and various new BRFS and AMBEVs will emerge. Some of these processes will be developed more strategically rather than being rushed through, others less so.

Over the last 5 years, branding consultants have been asked to take part in major consolidation processes. In most cases, we are called in after agreements have been signed and announced to the market because branding is rarely deployed as a key tool at the negotiating table from the outset, despite its being seen as a strategic asset for the business.

While companies do understand that their brands are more than just names or logos, many are not sure how their brands can actually become live business assets capable of generating identification, differentiation and value. In this respect, matters such as portfolio strategy, creating unique culture, and defining corporate citizenship platforms for merged companies have become branding issues.

In the heated atmosphere of an ongoing merger, a branding project always sets out to convey the best message to key stakeholders. There may be many variables given a record of equities built up by two or more brands, but if there is no one single solution, then defining criteria for decision making will become increasingly complex. On top of this is the fact that the business strategy has not always been consolidated.

The important point is to decide what to retain, what to join, what to drop, and what has to be created starting from scratch. Assuming that an understanding of synergies and complementarities will at the very least mean examining the name, symbol, visual identity, culture and communication of those involved, it is easy to see that a project like this requires dedicated resources and plenty of highly flexible resourcefulness.

Finding a clear definition that points to one single way forward is important - not least because the idea is to avoid losing value while definitions are being discussed. The impression is that competitors will always change up to play a faster and more assertive game when a big deal goes through. They will seize the "opportunity" to reposition or invest more. Plain action and reaction.

Soothing nerves and controlling the process of engagement to get decisions communicated internally first is always a challenge. Obviously no employee likes to see the news first in a newspaper reporting that the brand they have worked for over many years will be gone, or become something that has no meaning for


"

4Branding a key factor for merge & acquisitions deals

them. However, many companies will not even start thinking about it until after the effects of an announcement have been felt.

Measuring the economic impact of the alternatives under discussion is quite a complex task too, especially for brands operating on a global scale. It can cost over a million dollars just to register a brand name with regulators in several countries for different product classes. So carrying out a transition plan to change one or more brands at numerous points of contact is a significant investment, especially for consumer-facing industries with gondolas, packaging, fleets of vehicles and communication. Moreover, we do not believe that quantitative survey statistics alone can measure a consumer’s willingness to let go of a brand, or move on to another.

Unlike other countries, the situation in Brazil was that companies were allowed to announce merge & acquisitions proposals before obtaining full authorization from the antitrust agency (local acronym CADE). The waiting process took up to 2 years and it was hard to know what could or should be built in the meantime. In this context, many corporate names became brand names. Recently, new antitrust legislation in the form of Law No. 12,529 took the place of the previous Law No. 8,884. Major alterations include a system for prior notification of merge & acquistions deals and approval

from CADE. This poses a great opportunity for the "new" brands to start communicating with their employees, customers and investors right from the start. The question is to what extent this process will be followed by companies and how the inputs or resources needed will be allocated at a stage when the parties involved are still "looking at each other" and not necessarily feeling part of the same team.

In the hot-house process of searching for an identity, strategy falls by the wayside. Ironically, a narrow or blinkered view of a brand - as just a name plus logo - often emerges from hastily organized due diligence meetings held to comply with initial obligations. Going the right way about creating a name has to be one of the most complex of processes because it involves a collective exercise that is often abstract. When it comes down to "Like it" or "Don't like it", logic tends to lose out to emotion.

In short, the branding issue, which often seems simple in the eyes of actors holding complex negotiations between the parties involved, may become even more complex if ignored. But despite all the issues involved, if we could give just one piece of advice to those working on a project for a brand undergoing consolidation, we would say that the most important thing is to avoid the perception that there are winners and losers. This alone can minimally add to the chances of a successful brand coming out of a merger.

Paulista avenue

When it comes down

to "Like it" or "Don't

like it", logic tends to

lose out to emotion.

Some points to watch for on the road to consolidation:

When business strategy has yet to be defined

In a rush, a corporate name becomes a brand name

When the role of stock ownership is ignored in brand building

Capital market a key target for branding

Internal resistance must be crushed

When a brand is bought from a founder

Brazilian brands go shopping abroad

When it’s time to deconsolidate, reorganize brands

When verbal and visual identities build a bridge between rational and emotional

Corporate citizenship is part of the package too


e are longstanding advocates of brand strategy as a direct reflection of business strategy. However, there are some situations in which brand strategy has to be built even before business strategy is consolidated, or even defined.

Due to legal restrictions on the use of a brand, or the need to announce a merger and acquisition to the market, executives often find themselves facing the challenge of taking quick decisions on their brand without being sure of a solid basis for the business, which may seem like taking a huge leap without a safety net.

The new anti-trust legislation, with CADE introducing tougher requirement for its analyses, led to a tsunami of merge & acquisition deals in the last fortnight of May this year, prompting many companies to speed up negotiations. Hence the brand strategy questions that came up for these companies after they made an announcement to

the market: what will Diageo do with the Ypióca brand? Will there be a change in its positioning? Or its visual identity? What will come out of the Azul - Trip deal? A new brand? Will they retain their current brands? Obviously, questions like these are just part of a whole complex that has to be assessed. Nevertheless, brand strategy is perhaps the most visible aspect for customers buying these brands, the one that has most effect on employee engagement, and the one that signals change more tangibly for other parties, such as the capital market.

When business strategy has yet to be defined

1

At this point, a crucial move is to build the new strategy on the basis of the most deeply rooted and differentiating values of each company in the case of a merger, or to show respect for the culture of the acquired company and get leverage from it, in the case of an acquisition. In such a messy and risky scenario, the best alternative is often to define what you NOT want for the brand, and on that basis see what territories the brand can take over in order to ensure differentiation in the marketplace. Supposing this solution may be temporary and that brand strategy will deepen as the business consolidates, a very important point is not letting competitors in on future moves, or spending a lot of time and resources on transition scenarios. The idea is to get out a rapid response for the brand in the marketplace, while retaining the ability to adjust its course in the future.

Although there are several points to watch, experience shows that there are a lot of positive factors for building brand strategy in a scenario of business strategy being defined. Often, when strategy has yet to get past the stage of putting together PowerPoint presentations with a firm of business consultants, a question as simple as 'Which brand do we put on our business card?" becomes a major point for discussion - and in many cases, for sure, will lead to business strategy being revised. In addition, building brand strategy has a fundamental impact on senior management's engagement with goals and targets and may also be an important way of firing up staff to work for goals and targets.

In such a messy and

risky scenario, the best

alternative is often to

define what you NOT

want for the brand.


hen branding and business strategies are being developed at the same time, one of the most common mistakes we have seen is the name of the new corporate entity becoming a new corporate brand too. Often racing the clock to meet legal requirements, the corporate name eventually takes on a role that goes beyond contractual wording and almost empirically starts to take on the responsibility for communicating with internal and external audiences. This is a high-risk situation, since the corporate name invariably has no real content, nor does it contain a definite or differentiated message. From the internal point of view, it can generate noise in a period

already fraught with uncertainty, layoffs and structural adjustments.

From the external point of view, raising the status of a corporate name to that of a corporate brand can get in the way of the process of building brand strategy. You often hear people explaining the problem like this:" it was not really the brand we preferred, it came out of a meeting [or we already had the name registered] but since so much work had been done and so much money had been invested, this is what we are left with", which shows that the problem was dealt with but nobody thought it through properly. Not to mention the obvious waste of resources on building something that is not going to last.

In a rush, a corporate name becomes a brand name

From the external point

of view, raising the status

of a corporate name

to that of a corporate

brand can get in the

way of the process of

building brand strategy.

The brand equation2

Brahma and Antarctica, Sadia and Perdigão, Itaú and Unibanco, Santander and Banco Real, Fibria and VCP Aracruz, Nestlé and Garoto, TAM and LAN, Brasil Telecom and Oi, Casas Bahia and Grupo Pão de Açúcar

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eyes of industry analysts is now tracked by a much larger group of stakeholders. This directly affects brand perception among customers and consumers who are increasingly looking at companies' origins and developments in relation to corporate citizenship.

The question is often asked during a consolidation process: to what extent is it good or bad to have the corporate brand endorsed by its shareholders' brands? Until recently, the corporate brand was the "mother brand" that endorsed and contributed value to the other portfolio brands. On that basis, portfolio architecture and strategy was built. Today, when this brand has one or more shareholders, it is crucial to see whether these endorsements will benefit the portfolio or not. Add to that the task of analyzing these brands' profiles, cultures, and especially images and reputations. You can no

longer build a corporate brand and see how it relates to other brands in your portfolio without looking at the latter's relationship with controlling or co. parent brands. The guiding thread used to help a business build its own culture must at the same time be increasingly consistent and flexible if its brands' proposals are to hold up.

rom the internal point of view, defining instances for approval by shareholder or companies holding a stake in the business is an important factor affecting the way a brand project moves forward. These stakeholders must be involved right from the outset of the project in order to ensure positive results and the backing needed for the CEO, who may not always be able to rely on the support of a functioning executive committee.

Major conglomerates increasingly own numerous companies that may be business partners or may be competing among themselves. In this scenario, a brand's stock ownership structure and its relationship with the controlling portfolio are increasingly matters for concern and analysis for brand managers. A relationship that was previously restricted to shareholders and the watchful

When the role of stock ownership is ignored in brand building

Today, when this

brand has one or more

shareholders, it is

crucial to see whether

these endorsements

will benefit the

portfolio or not.

3


mong the key stakeholders around brand building is the capital market, both analysts and the investing public in the form of big, medium and small shareholders [the latter having even more impact, since their behavior is individual, like these brands' consumers].

In this respect, brand strategy becomes a means of communicating and tangibilizing changes, and for showing real evidence that the company is implementing its business strategy. As a result of this, branding projects are increasingly involving major investment banks and shareholders.

Many of the business strategy adjustments that instigate consolidations come from pressure to boost market value. Given that brand value is a significant part of a company's net worth, working with this percentage value to boost the absolute number is essential for a company to get better market valuations.

Averaging the world's most valuable brands on Interbrand's ranking, brand value may reach 40% of a company's net worth. But this is not the case for B2B markets, in which tangible assets predominate in the total value of a business. On the one hand, this is a challenge for brand managers struggling to boost their significance for the company, on the other it poses an opportunity for a company to build a single promise with much less investment.

Strong brands with a consistent record of delivering what they promise will get better results - due to their consumer loyalty or preference, or higher levels of employee engagement boosting their productivity. Nevertheless, many companies are unable to tell the difference between adjusting brand strategy and retouching visual identity or changing a name. If these cosmetic adjustments do not come together with real change in the company and its delivery, they may yet have positive impact in the very

short term. However, in the long run, the market will inevitably penalize these companies with projections lower than before their brand change.

Therefore, brands concerned to consistently meet capital market expectations tend to post even more positive results and earn more preference in investors' minds, which is extremely relevant at a time when a culture of investing in capital markets is taking shape in Brazil and foreign investors are looking at opportunities here.

4

Brand value

may reach 40%

of a company's

net worth.

Capital market a key target for branding


uite often, when a business has grown and is ready to go through a process of consolidation, someone says it is "looking for a bride to marry." Everyone gets ready for a party on the big day when CADE authorizes the deal - and for the honeymoon when the numbers for the joint effort are announced. However, these deals are also like weddings in the sense that the story starts with a long list of challenges to be tackled.

One of the biggest problems is that strategies are normally devised and agreed to on the basis of cost savings or synergies in the market, thus leaving out people and cultural issues. Normally, when party day has been marked on the calendar, it is because the two sides have reached a consensus and know what they want for the future. The important point here is that the fact of reaching this convergence in a business-like fashion does not necessarily mean they will be soul mates.

Just like weddings, mergers require planning and agreement between parties. Can you imagine getting married to someone you do not

know well? Who does not share the same values? Or whose aims in life are quite unlike your own? Of all the assets in play during a merger or acquisition, the one that should be watched most closely is brand culture. The challenge of capturing this intangible value during the process - and boosting it - is extremely underestimated and poorly understood.

Over the last few decades, we have seen several marriages that were unexpected given the history of the brands involved and their cultures. The latest case of this type was the Sadia - Perdigao deal. Both market leaders, direct competitors investing heavily in frontline retailing, both with the main objective of beating each other's sales numbers. To achieve their goals, each created their own culture in the race for customer preference. One more aggressive more focused on numbers and results; the other lighter on that side but more concerned to build closer relations with customers by building personal links. There was no right or wrong: the important point was that staff felt proud of being on

their team, and they saw the rival company as their chief adversary.

BRF - the company resulting from this deal - started off on the right road. Luiz Fernando Furlan, one of the leaders involved, showed that strategy for unifying cultures was on the agenda during the planning period when he said "We are preparing to be missionaries in order to truly unify the two companies " [Gazeta Mercantil, 2009].

When cultures are being integrated, brand strategy can be of great assistance. Since the first steps taken by "consolidators" involve legal, financial and administrative issues, the chances are you will find that people are badly informed and

dissatisfied, not knowing exactly where to go and how to act.

The first major challenge, which is not at all easy, but which helps a lot during a transition is to assure people that the deal is being handled well and carefully. That there are people keeping a close watch on each legacy asset, and that changes will be made at the right time and in the best way for everyone concerned. By officially notifying decisions to the internal public, management gets a strategic opportunity to minimize noise and establish a relationship of trust and transparency while allaying concerns over decisions that have yet to be made.

Internal resistance must be crushed

5

Strong brands, which

stay consistent with

their promises and

deliverances, achieve

better results.

The new brand's promise does not have to be the exact sum of each of the parts. Understanding synergies and complementarities between two businesses and their brands helps to foster awareness, lower anxiety levels for the internal public, and stimulate a new landscape for innovation. This new scenario may be bigger by combining the best from both companies into something new that inspires and motivates their teams, who now have their first shared goal.

Branding is neutral territory for settling disagreements and the analyses involved are not as cut-and-dried as business strategy. Ultimately, a company consists of its people. It is their reaction that will determine the success of the operation. And is branding that will get them passionate about a new idea, and work hard for the new team.

The path of discovery


When a brand is bought from a founder

The good news is that in cases of natural alignment with philosophies converging, the corporate citizenship platform in the consolidated scenario will show gains in terms of robustness and visibility. In the case of the Itaú-Unibanco merger, for example, there was a chain of movie theaters - an emblematic initiative that had been taken by Unibanco. This issue was the picked up on brand management radar and the name of the movie theaters changed from Espaço Unibanco de Cinema to Espaço Itaú de Cinema. At the same time, the experience of these venues was aligned with Itaú's brand identity without the losing the DNA or identity of an extremely significant cultural platform - and one totally in line with the bank's whole style and approach.

Interbrand's work in recent years has included an integrated approach to these assets. Our attempt to involve brand managers and those responsible for corporate citizen initiatives and their platforms bore fruit immediately in the form of the level of engagement of staff in the new companies and faster development of post-merger strategies.

ince branding is a relatively new discipline to be seated at the negotiating table for mergers and acquisitions, corporate citizenship platforms and sponsorship from companies that do much to help build them, are seldom seen as key assets for the process. Nobody will forget how hard Banco Real worked to build its sustainability platform. But can anyone tell us how much of this effort was inherited by the Santander brand after the merger?

Initiatives taken by brands, their foundations or associations, will often end up being left out of a package or being reduced to merely secondary considerations. This may happen for reasons ranging from legal agreements and stock ownership issues at the time of consolidation to challenges concerning the legitimacy of these initiatives and corporate citizenship platforms in the new context of the two corporate cultures being joined. During a phase of philosophical misalignment, so to speak, this agenda may be backgrounded by major business decisions or other expressions seen as more critical for the brand.

Corporate citizenship is part of the package too

6

n the process of devising strategy and building identity for consolidation, showing respect for the origins and legacy of each brand involved is a matter of survival. Stories and values are often embodied or personified in the figure of a great founder or manager. So the question is how to maintain and respect equities that have been built in the past when the new context is a fundamental change in the dynamics of the business?

Owner-managed companies will often become professionally managed companies. In these cases, even if the "owner" stays on as an executive, the dynamics of the business, the ways of applying pressure to meet targets and management style will go through a process of being "impersonalized", which may be very good or very bad for the people charged with building a new brand. Employees are often unable to differentiate the brand they work for from the brand of the entrepreneur who founded the company. Worse yet, the entrepreneur himself, normally responsible for the "sale" of a certain operation, often remains

attached to his own way of doing things, making it hard to introduce new rules and engage his former employees with them. In these cases, the entrepreneur must be involved in creating the new brand strategy and acting as an advocate of the new dynamics, the new business, and the new brand, showing employees that the origin of it all will be respected, but changes are needed to build something bigger - a new paradigm.

In many cases, these dynamics for building brand strategy in a merger / acquisition involve the families of shareholders and / or the founders of the original companies. Even if these bodies have vote or veto, they will invariably get involved in brand strategy issues as spokespersons or supporters of something that goes beyond the business itself. A legacy is often passed down for generations, and it now has to be seen in the light of the new dynamic. It would be useful to have an almost archaeological study of the dynamics and institutions that helped build the brands involved, so that the new brand will not be "insensitive" by making its appearance in the market before taking stock of these inputs for the process.

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or companies aiming to grow through mergers and acquisitions, shopping around in Brazil has gotten too expensive, and it is no longer so easy. So top Brazilian brands started looking to foreign markets, which posed new challenges and very different scenarios in relation to situations they are accustomed to locally.

Brazilian brands buying up operations in other countries have to tackle two major challenges. One is to internationalize and translate their way of doing things for operations and behaviors in different places, not only for business matters as such, but also by immersing themselves in different cultures, histories, legislation, behaviors and needs. The other challenge is to learn how to be a parent company, a leader that comes in with a well thought-out brand

management proposal and a long-term approach to the local scenario.

Historically, Brazil has been a land of opportunity for international majors and brands eager for new business and bigger profits. We have been formatted to adapt to the 'status' of being a colony for many decades, working for objectives decided elsewhere, and tropicalizing brand strategies without asking too many awkward questions or raising our voice. Over time, we have learned from people in the know and at the same we have been building up our own DNA. Now, we have to take what we have learned and put it into practice by dealing the pack and making the rules for own game.

Brazilian managers going to other countries to take over a company and its brand are taking on a big role. A constructive way of

Budweiser

Brazilian brands go shopping abroad

8

Historically, Brazil

has been a land

of opportunity for

international majors

and brands eager

for new business

and bigger profits.

positioning for a newcomer in this context is to be transparent and objective from the outset by telling people what is going to happen during the transition. To make a successful entrance, it helps to show perspective and signal a long-term commitment, thus diluting employees’ fear of seeing their brand disappear as soon as the new leader has made himself at home there. Brazilians doing merge & acquisitions deals in other countries have in many cases started by retaining local brands, apart from parent brand aspects and the operation itself. It seems that changes are not made due to fear and insecurity, since we are new on the international scene. But we have seen the opposite too, with brands being chopped in a rush, without thinking it through, in order to channel efforts into business and management issues. Whatever the

course decided, any scenario for coexistence between brands requires active management from day one - if only to mitigate risks and control critical situations in the medium term.

The recent example of ABInBev buying Budweiser in the United States is emblematic of a situation that has stood out for causing unease and antipathy toward the lead company.

A tactless approach to the legacy of the Anheuser-Busch brand - an American cultural icon - led to a liability that will be hard to settle. On arriving in America, ABInBev imposed its own style of management culture on executives and particularly a local community whose lives have been linked to the

company for decades. In a country like the United States, where people mobilize around issues that trigger strong nationalist sentiment, the market's quick-fire response may well be echoed in financial numbers.

The lesson to be learned from stories like this is that the new leader in a business may well meet with rejection and distrust. Merely exporting our set of tools, processes and ideas that shaped a successful brand in Brazil will not ensure that synergies are tapped in the new market. This applies across the board, from brand strategy and management to internal culture, communication, business practices and employee engagement.


with new courses such as journalism and advertising to extend its scope beyond business management, whereas the nonprofit Ibmec São Paulo preferred a focus on business and economics. Under independent managements and different groups, the two operations little in common beyond the name and logo - which no longer characterized the same brand. The process of separating brands and defining a new one [Insper] for the institution in São Paulo took a year and migration is still underway, while the Ibmec brand [now identifying only the original Rio de Janeiro operation] has not entered São Paulo. The involvement of students and faculty Insper throughout the period of building this new brand was not always fluid, but it proved an important point: a great brand can and should always go back to its DNA, its defining features. Reviving and revising its real vocation to then embark on a more coherent process of reorganization, strengthening its ways of communicating and being perceived in the proposed new brand scenario. In this case, the pointer to its origin was preserved, and transition took place naturally.

he urge to grow, gain market share and boost revenue may be taken as "the" reason for consolidating, but business units and their brands may be wound up or hived off too, and for the very same reasons. Roughly speaking, this fragmentation scenario arises from business strategy adjustments - the end of a joint venture, for example, or a decision to specialize, or an offering now seen as differentiated and having developed into a major generator of value and financial results, or simply the absence of chemistry between very different kinds of operations, cultures and proposals. Technically this is part of the job of organizing and managing a brand portfolio.

A split means that two players go back to running their own operations, so several questions are posed: who gets the brand for the integrated operations? How can employee motivation and commitment be maintained? How can the advantages of splitting be communicated while preserving the past of this business and its brand equities?

An interesting case in this respect is a Brazilian business school called Insper. Around three years ago, two operations lined up under the Ibmec brand started to travel separate roads - including in the geographical sense too. The Rio de Janeiro based Ibmec for-profit operation was growing its education portfolio horizontally

When it’s time to deconsolidate, reorganize brands

9 10

he classic issue of which logo remains after a consolidation starts to cause tension to the extent that a date for the official announcement of the deal comes nearer and not infrequently the market finds meaningless acronyms and symbols. There are a few options, such as maintaining one of the identities, combining both, or creating a totally new one. However, this decision often boils down to purely emotional issues. The fact of not knowing which "little brand" will be on a new business card triggers a real identity crisis in most companies. And it is just the beginning of a much deeper problem.

Obviously a name or a logo in itself will not be able to transform a new company, but in fact they

When verbal and visual identities build a bridge

between rational and emotional

are tangible symbols of the time of joining forces. They take on the role of the greatest representatives of new ideas too. Few companies realize that at this time there is a valuable opportunity to evolve, to reconnect with their employees and society – by wearing new clothes.

To take one example, does anybody remember that Banco Itaú was not originally called Itaú? Or that it has not always been represented by its "blue biscuit"? The bank started life as Banco Central de Crédito and became Banco Federal de Crédito in 1943. It was not until the 1960s, several mergers later, that it took the name of Itaú.

Insper


n beginning an identity project for a merger or acquisition, as is the case for brand strategy projects, we must first of all see what the identities involved have in terms of positive equities and weaknesses. As in any process of change, we stack up the good things on one side, and the rest, which is no longer useful is discarded or sent for recycling.

The stack of positive equities is the one that points toward the future. New opportunities will arise from it to define the identity being built - but the creative process is guided by brand strategy. There is no way of assessing whether a name or logo is right without having a clear notion of what the company wants to build with its brand. To see how a company is going to dress or talk, we must first learn about its personality, who it wants to be, what its characteristics and differentials or edges are. Since a brand is the outcome of a chain of experiences, the role of design is to create a guiding thread across these experiences. It does not matter whether we are talking about a color palette, stationery, packaging or a physical space: it is through the

design present in every experience that we interact with brands.

In the process of creating new identity for Alpargatas, for example, the logo was the cherry on the cake of attitudinal change that has been taking place in recent years. During this period, Alpargatas built a unique multicultural, multi-brand, multi-national identity that put an end to a longstanding process of separate operations in Brazil and Argentina. Where before there were companies with completely different logos and identities, today there is a single brand. When there is a consolidation, it does not always need a new logo or new name. The Itaú - Unibanco merger involved enormous challenges. All the scenarios were exhaustively examined in order to decide on a symbol for the sum of these two great financial fortresses. The answer as to how to incorporate elements from both banks' identities in one single system did not come as a new logo or a new name, but a new palette of colors, symbols, icons, product names, and other elements, anchored on the use of orange as the guiding thread.

When there is a merger or acquisition, the resulting company is repositioned on another level. In this context, qualitatively investing to build its identity is crucial to generate the right public perceptions of what this brand wants to communicate. It is vital to bear in mind that the main role of design is to transform perceptions into reality.

Today, strong and admired brands pose various lessons in this respect by creating and sustaining business cultures increasingly guided by design.

In their universes, each point of contact becomes a unique experience, capable of earning the loyalty of the target audience and continually reaching better financial results.

This is how Coca Cola delivers happiness. This is how the Brazilian market recognized the value of Korean cars, thus undermining past prejudices and gaining value for their brand equities.

evising a perfect name is not easy: it must be able to represent what the new company stands for. It must be inspiring, easy to communicate, and capable of being registered intellectual property for classifications and in countries of interest for the company. To get some idea of what this means, by the turn of the millennium, some 2 million brands a year were being registered in the European Union. In a consolidation process, a new name is needed when previous identities are no longer able to represent the new offer, or the new period, for legal or strategic reasons. The name will be the first trace of an emerging identity; it will set the tone, steer a course, and lead to (or fail to lead to) an initial favorable impression.

In the case of the Votorantim - Aracruz merger [both pulp and paper makers], we decided to create a new global name. Here were two relatively young companies compared to the other players, facing the challenge of joining the forces of their employees and building the world's largest hardwood pulp maker.

The grit and focus in the DNA of the merged company, which has now taken over as industry leader, combined with the "pulp fiber" product's origin, were the inspiration for the name Fibria, which now represents and sustains global leadership in its business for a firm of genuinely Brazilian origin and capital.

So what about the name?

Putting the house in order

A new name is needed

when previous

identities are no longer

able to represent

the new offer, or

the new period.


he new antitrust law (Law No. 12529/2011), which has been in effect since May 29, significantly alters the procedure for submitting applications to the anti-trust agency (Administrative Council for Economic Defense, or CADE). These alterations affect the merge & acquisitions market in Brazil and companies are advised to take certain precautions that were previously secondary or dispensable.

Under the new law, CADE must now be notified if a deal involves "economic concentration" and certain levels of revenue. An "act of concentration" occurs if a transaction involves acquisition of equity interests, setting up a joint venture, or the acquisition of assets (including brands), among other conditions. Transactions must be submitted to CADE whenever they involve an economic conglomerate that has posted gross annual revenues of R$ 750 million or more with at least one other conglomerate that has posted gross revenue of R$ 75 million in Brazil in the year prior to the deal.

The new law has adopted a system of prior analysis of mergers ("acts of concentration") and parties may

The new antitrust law and precautions for merge & acquisitons deals

not close a deal before getting CADE authorization. There are two consequences arising from the above. The most obvious one is that getting the antitrust agency's approval - which may take anything from 3 weeks to 330 days - will now be a preceding condition before a transaction is concluded. The other effect, which poses greater practical difficulties, is the obligation to avoid so-called gun jumping by preserving the independence of the companies involved until CADE's decision, since the law prohibits transfer of assets, or exercise of any kind of influence by one party over the other, or exchanging sensitive information beyond a reasonable limit.

Companies that fail to comply with these obligations will be subject to severe penalties, including fines ranging from R$ 60,000 to R$ 60 million, the transaction being declared annulled, and an investigation into anticompetitive conduct.

In this context, there are certain precaution that should be taken by companies involved in merge & acquisitions transactions,

By lawyers Machado Meyer Sendacz Opice

especially those with competitors or parties potentially integrated as suppliers or distributors.

Firstly, companies are advised to make a preliminary assessment of the anti-trust risk involved in a transaction. This measure is an important factor steering negotiations on contractual terms and even for defining acquisition price. For a seller, accepting a lower bid in a deal that will tend to get approval from CADE quickly and unconditionally may be more advantageous than holding out for a higher price from another deal that might involve problems with the agency.

In addition, parties should negotiate specific clauses to protect their interests. In this respect, a seller may stipulate a deadline ("drop-dead" or “long stop” date) for CADE approval, after which the contract may be canceled without onus or fees. They should agree on protective mechanisms in the event of CADE rejecting the transaction, including payment of compensation by the buyer, or compelling a party to adopt any measure capable of addressing competition concerns identified in order to obtain CADE

approval, such as selling off stakes in other companies or assets (hell or high water clauses). On the other hand, a buyer may demand control over the process in relation to CADE, to delimit acceptable restrictions and stipulate the possibility of pulling out of the deal or lowering its price if an unacceptable restriction is being posed - such as selling off a particular brand of the acquired company to a third party.

In order to avoid gun jumping risk, the parties should set rules

for the flow of information between them through to closeout date; stipulate confidentiality obligations; and regulate their behavior in relation to customers, suppliers and other partners during the transition period. Finally, an important point to note is that the need to preserve the independence of the parties does not prevent a buyer from negotiating guarantees in its favor, such as the seller's obligation to maintain the normal course of business, preserve assets, business relationships, and key employees, and

refrain from taking on debt above a certain level, among other items.

Negotiating contractual clauses of this nature is already part of merge & acquisitions practices in countries that adopted prior antitrust approval procedures in the past, and this type of negotiation is essential to avoid surprises that may adversely affect the outcome of the transaction. The adequacy and efficacy of these clauses will largely depend on the experience of the parties' attorneys in corporate and antitrust areas of practice.

The merging process

Before the antitrust law

Merger

Merger

Announcement

Announcement

CADE

CADE

Now

MARCA

BRAND

26

Institutional support by

Contact us

Interbrand do BrasilPhone +55 11 3707 8500

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For further information on brands

www.interbrandsp.com.brwww.interbrand.com

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Interbrand started its activities in 1974, when the world still thought of a brand as only a synonym to logo and name. There are currently 36 offices worldwide and a highly qualified team of professionals, who make our business rigorously detailed and creative.

We create and manage brand value, putting it in the middle of the strategic targets of the business. We combine pioneering and practice in the branding discipline with creativity and ability to innovate, in all the life cycles of a brand.

Brand StrategyThe brand strategy work requires intense partnership. Our team works along with the clients to identify market opportunities and help them to position their brands, thinking of short and long term strategies. To do so, we carry out data analysis that involves quantitative aspects as well as the identification and mapping of functional, inspirational and aspirational benefits of a brand.

The brand strategy involves several subjects and expertise, from brands’ architecture and position to the engagement of collaborators.

Actuation areas

Brand IdentityA well-defined brand identity is a powerful communication tool, which goes beyond the identification of a business or organization. It is an endorsement of quality, value and trust. It promotes understanding and distinguishes companies from products for the consumers.

We understand brand identity as the reflection of its strategy in aspects that are visible in the everyday routine, such as the name, the tone of voice usedin communication, logo, stationery, packaging and the other points of contact where the brand is present.

Brands’ AssessmentThe assessment aims to understand the financial value of a brand and how to increase the role it plays to generate measurable impacts.It is through an assessment work that companies can have a more specific dimension of how much brands can positively impact on their results, generating value to the business.

Interbrand is the pioneer in this subject, which it has been developing since 1988. We annually prepare the Best Global Brands ranking, published bythe Business Week magazine as well as specific rankings by country.

TextDaniella Bianchi, André Matias, Victoria Murat, Laura Garcia and Beto Almeida

Graphic project Cris Inoue, Pedro Mattos, Daniela Moniwa and Renata Rodrigues

Images and illustrations are not for commercial use

Credits

Photography Page 4 // Flavio Meyerwww.flaviomeyer.com.br

Page 20 // Insper

branding a key factor for m&a deals

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