Source : Globe & Mail

Putting the proper spin on a merger or acquisition is almost as important as the arrangement itself

When CanWest Global Communications Corp. and the private equity firm Goldman Sachs Capital Partners confirmed they were engaged in a friendly takeover of Alliance Atlantis Communications Inc. - one of Canada's biggest entertainment companies - you'd think all would go swimmingly.

After all, the three companies agreed that CanWest and Goldman Sachs would pay $53 for each Class A and Class B share of Alliance Atlantis, valuing the deal at about $2.3-billion. And Alliance Atlantis shareholders, owning 80 per cent of Class A shares, committed to tender their shares to the offer.

But a group of unions representing media workers - including CEP, ACTRA, CWA-Canada and CUPE - saw the deal with U.S.-based Goldman Sachs as an attempt to introduce foreign ownership of Canadian media interests. They argued that the deal would lead to a loss of jobs, local programming and Canadian culture. CanWest, of course, rejected such scenarios.

And the communications battle was on.

The fight is not for the wallets of Alliance Atlantis management or shareholders, nor is it for the hearts and minds of the Canadian public. The battle is for the approval of the Canadian Radio-television and Telecommunications Commission, the federal agency hearing from the deal-makers and any other interested parties before ruling on whether the deal can go ahead.

When it comes to mergers and acquisitions, the communications strategy is almost as important as the financial deal, experts say, particularly if the takeover bid is hostile. Lawyers who dot the I's and cross the T's in such deals agree.

"An effective communications strategy is a critical part of any successful merger or acquisition," says Terence Dobbin, a partner specializing in mergers and acquisitions with Ogilvy Renault LLP in Toronto.

"The financial folks can put together a tremendous deal, but you have to convince shareholders that the deal is in their best interests or it may not happen."

Communications are important whether a takeover bid is hostile or if both companies believe the deal is warranted, says Linda Smith, executive vice-president of Fleishman-Hillard Canada in Toronto.

In a hostile takeover, strategic communications are crucial to explain the merits or negative implications of the deal to the shareholders of the target company. In a friendly merger, it is needed to let shareholders know that the best possible deal is on the table.

And effective communications may be the key to persuading third-party stakeholders, who may not have a stock-based interest, to support the deal. These stakeholders may include employees, unions, activists, non-governmental organizations, governments, regulators, customers and suppliers.

Ms. Smith says "deals can go off the rails even if the two parties are in agreement," because of opposition from such third parties. "Communicating properly with third-party audiences is often credited as the vital difference between making the deal and making the deal work."

Freda Colbourne, chief executive officer of Edelman Public Relations Canada Inc., agrees. "The deal-makers focus on making the deal; we focus on the story and why it's good for the companies, shareholders, employees, even Canadians," she explains.

"Without communicating why the deal is important, you can get resistance from stakeholders. On the other hand, if you are representing a company that does not think it's a good deal, you have to convince stakeholders that the status quo is better, or that there will be a better offer out there."

When Labatt Brewing Co. Ltd., Canada's largest brewery, tendered a purchase for Lakeport Brewing Income Fund, the country's fastest growing discount brewer, there was "a great deal of communication sensitivity," says Ms. Colbourne, whose company represented Labatt in the deal.

Labatt's offer of $201-million, or $28 a unit, represented a 36-per-cent premium over Lakeport's stock price when the friendly takeover was announced.

The deal had the support of Lakeport's chair and CEO, Teresa Cascioli, who owned 21.6 per cent of the units, but it needed approval from at least two-thirds of Lakeport shareholders and was also subject to regulatory approval.

Lakeport employees, in turn, were concerned about what the deal would mean to the future of Lakeport's plant in Hamilton and its management team.

The proposed takeover also drew heated reaction on the Internet, where bloggers feel free to add their voice in supporting or rejecting M&As - something any communications strategy must take into account.

In the end, after high-profile arguments at the federal Competition Tribunal, the deal went ahead.

Ms. Colbourne says that when planning a communications strategy, she likes to think that "there is somebody like me on the other side." She attempts to figure out their strategy so she can help her client make its case and launch pre-emptive strikes, or at least counterpunch effectively.

Generally, the communications experts are brought in by the deal-makers and sit at the table from day one. While the experts sort out the financial and legal nuances, the communicators try to determine who the various stakeholders are, how they might perceive the deal and what key messages are required to get important stakeholders onside.

The communicators put the best spin possible on the deal, crafting a main message and often creating messages with different focuses for specific target groups - while ensuring all messages meet legal requirements, especially when publicly traded companies are involved.

When the Saskatchewan Wheat Pool launched a bid for Agricore United of Winnipeg, farmers had a number of business concerns, such as whether they would lose grain elevators in their towns. Along with advertisements and public meetings, the communications strategy called for telemarketing to reach farmers directly. Calls were made during the planting season only on rainy days, when farmers wouldn't be out in their fields. (The deal closed and the two companies merged and became Viterra Inc.)

"While an effective communications strategy is important in hostile bids, it's just as crucial in friendly mergers," notes Wayne Bigby, executive vice-president of Toronto-based Kingsdale Shareholder Services Inc., which implemented the communications strategy for the Wheat Pool-Agricore merger.

However, hostile takeover bids can be even more challenging, says Ogilvy Renault's Mr. Dobbin.

"You have two parties with different messages and there is greater potential for stakeholder confusion."

The communications specialists must craft clear and consistent messages while monitoring and reacting to statements by the opposition.

It is then up to the shareholders, regulators and other interested parties to figure out just where the truth lies.

© Globe and Mail