stalwarts roudtable reputatio …...march 2016 stalwarts roundtable reputation opportunities and...

STALWARTS ROUNDTABLE: REPUTATION OPPORTUNITIES AND RISKS FOR M&A IN 2016

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THE M&A ADVISOR SYMPOSIUM REPORT Featuring

MARCH 2016

STALWARTS ROUNDTABLE REPUTATION OPPORTUNITIES AND RISKS FOR M&A IN 2016At The M&A Advisor’s Annual Summit in New York on November 17, 2015, Lex Suvanto, Managing Director, Financial Communications & Special Situations, Edelman, chaired a Stalwarts Roundtable discussion on Reputation Opportunities and Risks for M&A in 2016. Suvanto and four professionals experienced in M&A, journalism and corporate communications – Steven J. Williams, partner in the M&A group at Paul, Weiss, Rifkind, Wharton, and Garrison law firm; Liz Hoffman, M&A reporter for the Wall Street Journal; Seth Martin, Director, Financial and Corporate Communications, GE, and Arthur Crozier, Chairman of Innisfree M&A Incorporated, a proxy solicitation firm – engaged in a wide-ranging, engaging and informative discussion on the importance of clear, accurate and transparent communications with shareholders and the public in today’s fast-moving M&A market.

In this report, we gather the insights and reflections of these five experienced professionals who participated in this session. The pages to follow highlight their perspective on public and investor relations management in the M&A market that is so crucial to economic growth now and in the years to come. The principle issues addressed in this symposium report include:• Analysis of global media reporting on M&A deals • Board-centric and shareholder-centric governance • Shareholder knowledge• Media relations process for deal stakeholders • Role of the advisors in realizing positive media • The most trusted deal spokesperson

The importance of stakeholder and public communication in the M&A process is profound. Any small mis-communication can work to scuttle a deal. The advent of today’s activist investment climate makes effective and accurate communication through company materials and through the media imperative. I invite you to read this insightful report about a crucial segment of the M&A industry whose performance affects us all.

Arthur Crozier Chairman

Innisfree M&A Incorporated

Liz Hoffman M&A Reporter

The Wall Street Journal

Seth Martin Director, Financial &

Corporate Communications GE

Lex Suvanto Managing Director

Financial Communications & Special Situations

Edelman

Steven J. Williams Partner–M&A Group

Paul, Weiss, Rifkind, Wharton and Garrison


Presented by

ContentsExecutive Summary 1

Introduction 1

An In-Depth Look at Global Media Reporting on 20 Deals 1

From Board-Centric to Shareholder-Centric Governance 2

How Shareholders are More Informed 2

Explaining Every Step of the Process to the Stakeholders and Media 3

Advisors are Often the Key to Positive Media 4

Who is the Most Trusted Spokesperson? 5

Video Interviews 6

Symposium Session Video 7

Contributors’ Profiles 8

Appendix A 10

About the Sponsor 11

About the Publisher 12

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“We’ve got legal perspective, press perspective, corporate perspective and investor perspective through the eyes of a proxy solicitor.”– Lex Suvanto

Executive SummarySo much time, care and effort is put into corporate communications during M&A activity, yet only one-third of the time the messages that the parties wish to convey actually make it into the media coverage. How do corporations and their advisors interact with the media during dealmaking? A panel of experts at the M&A Advisor’s 2014 summit addressed this question in detail. Journalists look for all angles to the story, including the corporate messages, but also get input from investors, including activists. Corporate governance has been reshaped by activism, with fewer poison pills and more dialogue between boards and shareholders. Board members are increasingly more important as spokespeople during deals. Deals must be explained in detail, with care to avoid the risk of misperceptions.

IntroductionAt the Annual M&A Advisor’s Summit, held November 17, 2015 at the New York Athletic Club, Lex Suvanto, Managing Director – Financial Communications & Special Situations, Edelman, chaired a Stalwarts Roundtable discussion on Reputation Opportunities and Risks for M&A in 2016.

In this report, we gather the insights and reflections of four M&A communications experts and a seasoned M&A reporter from the Wall Street Journal. We detail their observations on M&A reputational risk management and the direction it is likely to take in 2016 and beyond. The Panelists were: Lex Suvanto | Managing Director, Financial Communications & Special Situations, Edelman Steven J. Williams | Partner – M&A Group, Paul, Weiss, Rifkind, Wharton, and Garrison Liz Hoffman | M&A Reporter, Wall Street Journal Seth Martin | Director, Financial and Corporate Communications, GE Arthur Crozier | Chairman, Innisfree M&A Incorporated

An In-Depth Look at Global Media Reporting on 20 DealsTo set the context for the panel discussion, moderator Lex Suvanto explained an InfoGraphic that Edelman shared with the summit audience on “Media Trends – Mergers and Acquisitions.” (See Appendix A.) The information was gleaned from proprietary research that Edelman conducted, including in-depth looks at global media reporting of 20 deals in four sectors – health care, consumer, technology, and financial services. More than 750 publications wrote about the 20 deals, generating over 4,000 articles, generating more than 5 billion media impressions (a combination of names appearing in articles and instances of readers reading those articles). Suvanto observed that “one-third of the time, the messages that the company articulated made it into the press… The factor that we found was most likely to drive positive tonality in the article was the presence of a company spokesperson. Without a company spokesperson, the articles were positive 30% of the time. With a company spokesperson, they were positive over 70% of the time.” The industry that had the greatest traction in terms of message penetration was health care. The industry that had the worst performance, in terms of message penetration into these 4,000 articles, was financial services. (More information from this research will be published on Edelman’s website, www.edelman.com.)

http://www.edelman.com

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Suvanto challenged the panel to discuss M&A transactions from the reputational point of view, in particular the pitfalls, the positive benefits of the deals, and the behavior of the companies doing the deals. “We’ve got legal perspective, press perspective, corporate perspective and investor perspective through the eyes of a proxy solicitor,” he said. He then asked, “What kinds of deals are particularly associated with negative attention or negative stigma and as you’re looking ahead into next year? Are there certain aspects of certain deals or certain kinds of deals, certain deal-making behaviors that are likely to come with a reputational risk?”

From Board-Centric to Shareholder-Centric GovernanceThe Wall Street Journal’s Liz Hoffman quickly observed that “there’s obviously a lot of big deals that are happening right now,” including deals “where public perceptions don’t necessarily match up with what the companies would like them to be. Many of these are big cross-border deals that have tax implications.” She cited negative coverage and political fallout from “inversions” over the past couple of years. “There’s really good financial reasons to be doing these transactions, but not everyone wants to acknowledge them because there’s political or customer or supplier…implications. So, I think, that’s probably where we see the biggest gap between the messages that are sent out and the messages that are received and printed,” Hoffman said.

From the investors’ perspective, Innisfree’s Arthur Crozier observed that the recent movement toward more shareholder-centric than board-centric corporate governance models (largely spurred by activist investors) has heightened the need for reputational risk management. “The shareholders are, increasingly, extremely protective over what they see as their prerogatives as shareholders,” Crozier said. “Where we’ve seen some real issues recently are transactions where one board or management team has been able to be presented as not responsive to the shareholders because of the way that they’ve approached the transaction or the way they’ve executed on it.”

Lawyer Steve Williams added that shareholders have become much more sophisticated consumers of information about complex transactions. “Part of that is, obviously, the rise of active activism. You have hedge funds that are devoting tremendous amount to the details of transactions, to the details of disclosure. You have institutional investors who are more receptive to the activist point of view and who are also asking tougher questions, digging deeper into the questions of why was this the right path, having less difference to the decisions of corporate decision makers,” Williams said, adding that five or ten years ago, a company’s biggest concern may have been a plaintiff ’s lawyer who was going to bring a suit. Today, the concern has shifted to who is going to come up with an opposition proxy, or “who’s going to show up with a white paper that’s going to take a very intelligent analysis of every decision you could have possibly made wrong in 20/20 hindsight, and plaster it over an SEC file.”

How Shareholders are More InformedHistorically, Crozier said, passive index fund managers didn’t get involved in shareholder causes, most often going along with management in M&A transactions. “They are now becoming part to the general movement towards much more informed shareholders… That can have a major

“The shareholders are increasingly, extremely protective over what they see as their prerogatives as shareholders.”– Arthur Crozier

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impact,” he noted. “I remember [during] the Dell transaction (2013) sitting in a conference room with [a rep from] one of the major index funds, who told me how the transaction was not right because they’d done a fundamental analysis and evaluation analysis of Dell, and concluded that five years out it would be worth significantly more than what Michael [Dell] was offering, even adjusted for time. I turned down and looked at his business card and it was Director of Global Indexing Strategies… This was a very different change from what we had seen until fairly recently.”

Suvanto steered the discussion into how corporate governance is becoming more a part of perception of transactions and the ability of the companies to push these things through. Liz Hoffman said the Wall Street Journal has covered “a couple of really big, hostile deals over the last couple of years;” in particular, ones where buyers were trying to use their stock as a currency. “You’ll see that a very quick attack is usually served on corporate governance requirements which are asking investors to take their stock as currency. There are going to be investors of the company that start poking holes in things,” she added.

With recent trends toward corporations getting rid of staggered boards and poison pills, there is an expectation of more openness in governance, noted Steve Williams, citing the recent attention-grabbing “inversion” deals where US companies get acquired by foreign entities for tax-saving purposes. “On one hand,” he said, “Every stockholder has an interest in lowering the tax rates and being more competitive abroad. On the other hand, there’s something that just sort of grabs at people – the idea of leaving the country in order to get a more favorable tax rate.”

Explaining Every Step of the Process to the Stakeholders and MediaSuvanto asked GE’s Seth Martin if there are circumstances in which he felt the company’s reputation was put at risk or in a precarious position because of how a deal unfolded? Martin said that, on the financial side, “It ties back to a very clearly stated strategy,” one that is very clear to investors and shows up in the media strategy. On the industrial side, there are more regulatory risks. Citing a very large recent deal, he said: “A lot of what had to play out in the regulatory process there did play out in public. Every step with the process had to be very well explained to the media and why it was happening.”

Liz Hoffman and Art Crozier were asked to explain how people calling with pitches for certain deals or interacting with investors can influence outcomes. “Our job at the Journal is to write things first and write them smart,” Hoffman said. “I think there’s a wide perception that those are in conflict; I don’t think they are. We rely on people to be honest, and sometimes that’s easier said than done, especially when there’s a message that they’re trying to get out.

“Frankly, sometimes deals aren’t perfect. Sometimes they have problems. Sometimes the price is not very good. I think you should all assume that we’re going to do our own analysis, we’re going to talk to a lot of investors who are doing their own analysis, and I think, being as honest as we can about, sort of, the warts and the upsides of all of these things,” she concluded.

“On one hand, every stockholder has an interest in lowering the tax rates and being more competitive abroad. On the other hand, there’s something that just sort of grabs at people – the idea of leaving the country in order to get a more favorable tax rate.”– Steve Williams

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On the investor side, Crozier said, “Anything that casts doubt on whether it’s the business rationale for the transaction, finance, or anything else,” can cause investors to react, and must be addressed immediately. Companies should have a plan to address them potential issues before or immediately when they arise. Anything that “could be used to show that the board is asleep at the switch or is not fully on top of the situation gives rise to real credibility problems,” he stated.

Martin added that the clarity of communications materials is very important. “What I’ve found is that often people who are commenting on your deal are not the reporters in media that regularly cover you,” he said. “Early in the morning, it can be a TV anchor who just does not know your company that well. You know producers who work with them. You’ve got to make sure that the rationale is extremely clear because those first couple hours are going to be very definitive.”

Advisors are Often the Key to Positive Media “Can the choice of an advisor make a difference in how the deal is perceived?” Suvanto asked. “And to what extent do advisors play a role in forming the perceptions of a transaction?”

Hoffman said that for journalists, advisors are important – they are “repeat players.” Companies might do a deal every two or three years, or less often depending on size but advisors are working on deals all the time, she said. “That’s where some of our best relationships are, and I think that’s where we rely on people to sort of steer us right and be helpful where they can.”

Martin added that corporations might think they have great relationships with a publication or reporter, but often, advisors have even better relationships. “If you’re working with the late great [investment banker] Jimmy Lee, he’s got better relationships than you do,” he quipped.

Suvanto asked the panel to comment on a “commonly held assumption” that financial advisors leak information to the media or investors. “I’m not touching it,” Hoffman declared. “I have no idea,” Crozier added. “I’m sure none of my friends in the investment banks would do that,” Martin replied.

Suvanto then followed up with a “better question”, asking: “What’s one of the worst things that you have seen? Some worst case scenarios of mishaps, of missteps that company’s made?”

Crozier cited the “terrifying case” of a $100 million spreadsheet error (Tibco sale to Vista Equity Partners 2014) in a $4 billion deal. “When it’s 2 o’clock in the morning and we’re looking at the transactions documents and the demons start to come and you wonder what have I missed?” he said. “What activity was going on at the investment bank that wasn’t disclosed and we didn’t ask the right question… We spend a lot of time thinking about process because you can screw up. Everybody screws up. It happens. What’s not forgivable is screwing up because you didn’t think things through and didn’t plan.”

Added Hoffman: “Advisors spend a ton of time thinking about their message, and I’ll be totally frank with you, the press doesn’t care all that much. It’s something that gets thrown into the pot

“We rely on people to be honest and sometimes that’s easier said than done, especially when there’s a message that they’re trying to get out.”- Liz Hoffman

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along with heavy doses of reality…I think it’s very funny. Stay on message. We would love to get you guys off message.”

Who is the Most Trusted Spokesperson?Edelman’s Suvanto said that one of the most important functions of communications advisors “is challenging our clients and channeling the passion they have for their own point of view against the realities that we face outside.” He then asked the panelists to pick who’s trusted the most as a spokesperson in a deal – board chairman, CEO, CFO or largest, long-term investor. “Not one of those phony baloney short-term investors,” he clarified.

Crozier said, “It depends who’s going to have the job.” Hoffman answered: “Chairman of the board.” Said Martin: “I gotta go with CEO.” Added Suvanto: “CFO, okay?” Replied Crozier : “Because he’s gotta live with the numbers and reality afterwards.”

Wrapping up the discussion, Suvanto asked the panel to answer one last question: “Under what circumstances does it make sense for the board to get involved in external perceptions?” Crozier said that depending on the situation, “If you have serious issues with shareholders you really want ideally the chairman, or if he’s not independent, a leading dependent director talking to the major shareholders.” Hoffman added that board members “can be really credible,” more so than “a CEO who’s looking out for his or her job.” Crozier then asked Hoffman: “Do you have long conversations with board members in the course of your work? I shudder at the thought of putting the board in front of you, but I’m curious if that’s just me.”

“They can be very valuable,” Hoffman replied. “They have different interests to worry about. They have different reputations to worry about. They’re not joined at the hip to the company, especially if it’s a special committee situation. [If] it’s a deal that involves management, or there’s any sense of a conflict, I think you [should] put your lead special committee director in front of anyone who wants to talk to them.”

“When it’s 2 o’clock in the morning and we’re looking at the transactions documents and the demons start to come and you wonder what have I missed?” - Arthur Crozier

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To watch exclusive M&A Advisor interviews with these industry experts on ‘Reputation Opportunities and Risks for M&A in 2016’, click on the following images:

Video Interviews

Arthur CrozierChairman Innisfree M&A Incorporated

Lex Suvanto Managing Director Financial Communications & Special Situations Edelman

Lex Suvanto Ma

Steven J. Williams Partner–M&A Group Paul, Weiss, Rifkind, Wharton and Garrison

https://youtu.be/nsNmBnY3O_0

https://youtu.be/nQ-pAQwbZS0

https://youtu.be/-PPigtvNQpE

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To watch Stalwarts Roundtable ‘Reputation Opportunities and Risks for M&A in 2016’ at M&A Advisor’s 2015 Summit in New York, click on the following image:

Symposium Session Video

Reputation Opportunities and Risks for M&A in 2016

https://youtu.be/QK3NuJm8ncc

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Symposium Participant Profiles Arthur Crozier is Chairman of Innisfree M&A Incorporated of New York and of Lake Isle M&A Incorporated, Innisfree’s wholly-owned UK subsidiary. Mr. Crozier’s practice includes the representation of U.S. and international clients in a wide variety of transactions and proxy contests, as well as annual and special meetings. In addition, he counsels an international roster of clients on corporate governance and executive compensation issues. Recent activist/takeover situations he has worked on include: the successful defense at Oshkosh Corporation against a proxy contest and unsolicited tender offer by Carl Icahn; the successful defense at Agrium against JANA Partners’ proxy contest; the successful proxy contest waged by P. Schoenfeld Asset Management at MetroPCS to improve the terms of its merger with T-Mobile; and others. Mr. Crozier has written numerous articles and spoken extensively on the subjects of corporate governance, proxy contests, hedge fund activism, executive compensation and international voting practices. Liz Hoffman is M&A Reporter for the Wall Street Journal. Liz writes about mergers and acquisitions and corporate governance for The Wall Street Journal in New York. She graduated from Tufts University and has a master’s degree from the Medill School of Journalism at Northwestern University. She helped to break Page One deals including Halliburton’s takeover of Baker Hughes and the merger of Burger King and Tim Horton’s, and has written about shareholder activism and merger litigation.

Seth Martin is Director, Financial & Corporate Communications at GE. Seth Martin leads financial communications for GE including quarterly earnings, M&A, legal issues, the annual report, annual meeting and CFO communications. He also leads media relations on corporate and reputational issues, and is responsible for digital communications externally. Seth has spent nearly his entire career in the financial services, asset management and investment banking business. Prior to joining GE, Seth was Vice President, Communications at Barclays in New York managing media relations for several of Barclays’ core business lines including research, commodities, clean-tech investment banking and Latin America communications. Prior to Barclays, Seth was VP, Communications for Mizuho Corporate Bank, managing Mizuho’s Americas communications. Prior to Mizuho, Seth was an Assistant VP at Morgan Stanley, first leading internal communications for Morgan Stanley Investment Management, and later as a media relations specialist covering asset management. Seth began his career as a financial journalist and editor at IDEAglobal, covering U.S. equities. As a market strategist at IDEAglobal, Seth was frequently quoted in the media and interviewed on CNN, Fox, and Yahoo Finance TV.

Arthur Crozier Chairman Innisfree M&A Incorporated

Liz Hoffman M&A Reporter The Wall Street Journal

Seth Martin Director, Financial & Corporate Communications GE

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Lex Suvanto is the global practice lead for Financial Communications & Special Situations at Edelman, the world’s largest communications firm with 67 offices around the world. Lex advises the senior management of public and private companies on strategic and capital markets communications to help effectively position them with the financial community during transformative events as well as during normal-course business. Lex has led M&A communications in both friendly and contentious situations for dozens of companies across all major industry segments. He has helped public companies successfully defend against shareholder activists and helped companies launch themselves through IPOs, spinoffs and restructurings. He has also helped companies manage major leadership transitions, litigations and regulatory investigations and enforcements. Lex has extensive expertise helping companies strengthen their investor relations programs, and he frequently coaches C-suite executives and Boards of Directors on messaging and communications related to contentious situations. Prior to Edelman, Lex spent a decade at Abernathy MacGregor. Previously, Lex worked for Havas (a global advertising conglomerate) in strategy and client service roles in Paris, London and New York. Lex previously worked in strategy and financial planning for Hearst Magazines. Lex has an honors degree in Economics from Harvard College and an M.B.A. from Harvard Business School.

Steven J. Williams is Partner at Paul Weiss. He is a member of the firm’s Mergers and Acquisitions Group and of its Investment Management transactions practice. Steven has extensive experience with public company transactions, leveraged buy-outs, mergers-of-equals, board representations and special committee representations, as well as with private equity and venture capital transactions, auctions, joint ventures and restructuring transactions. He is active in contested matters, representing both activists and targets in proxy fights, consent solicitations, tender offers and other unsolicited transactions. In addition, as a member of the firm’s Investment Management transactions practice, Steven focuses primarily on acquisitions and sales of asset management and other financial services firms.

Lex Suvanto Managing Director Financial Communications & Special Situations Edelman

Steven J. Williams Partner–M&A Group Paul, Weiss, Rifkind, Wharton, and Garrison

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Presented by

Apendix A

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About The SponsorEdelmanEdelman Financial Communications & Special Situations is a boutique strategic consultancy with the reach and resources of the world’s largest public relations firm. We advise public and private companies on strategic and capital markets communications to help effectively position them with the financial community during transformative events as well as during normal-course business. We support our clients’ communications needs in the following areas: Mergers & Acquisitions; Investor Relations; Shareholder Activism; IPOs & Spin-Offs; Capital Markets Public Relations; and Special Situations, including CEO transitions, Litigation, Bankruptcy & Restructurings. Clients choose to work with us because of our specialized and experienced financial communications team, our ability to provide the full range of Edelman’s services (such as digital and social media, public affairs and employee engagement) as well as our ability to access Edelman’s global network with 65 offices around the world.

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About the PublisherThe M&A AdvisorThe M&A Advisor was founded in 1998 to offer insights and intelligence on M&A activities. Over the past eighteen years we have established a premier network of M&A, Turnaround and Finance professionals. Today we have the privilege of presenting, recognizing the achievements of and facilitating connections among between the industry’s top performers throughout the world with a comprehensive range of services. These include:

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professionals.

M&A Connects. Advanced business development for key influencers and decision makers.

M&A Deals. The global deal-making platform for M&A professionals.

M&A Links. The industry’s largest network of M&A, financing and turnaround professionals.

Recent and Upcoming EventsEuropean Emerging Leaders Awards - London, UK - January 14, 2016

Distressed Investing Summit - Palm Beach, FL - January 27-29, 2016

International Financial Forum - New York, NY - April 11-12, 2016

Emerging Leaders Summit - New York, NY - June 10, 2016

M&A Advisor Summit - New York, NY - November 8-9, 2016

M&A Advisor LiveLive Web Broadcast “2016 Outlook for US/UK M&A” - New York, NY - February 4, 2016

Live Web Broadcast “2016 European M&A Outlook” - London, UK - February 22, 2016

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