The scene on July 31st this year was reminiscent of the face-off between Gordon Gekko and Teldar Paper executives at the stockholders meeting in the 1980s film Wall Street, with billionaire investor Nelson Peltz in the Gekko role, and Heinz CEO William Johnson leading the somewhat hapless executive board.
In one of the year’s most contentious proxy fights, Peltz railed against food giant Heinz’s “clubby, caretaker board” and said he wanted “to create an entrepreneurial spirit that I don’t think exists today.” Heinz managers responded timidly under the weight of criticism of their record. CFO Arthur Winkleblack, for example, pleaded: “We have worked long and hard to get the company to this point and we just don’t want any further distraction.” After the proxy vote was tallied in early September, Johnson was forced to welcome Peltz onto his board, together with another Trian Group nominee, former Snapple CEO, Michael Weinstein. Such bitter proxy fights go back decades, but what marked the July Heinz versus Trian debate was the fact that it was conducted for the benefit of investors via webcast under the auspices of the Governance Forum, a service launched in 2005 by ISS, a governance and proxy adviser.
During the course of the fight, both sides used an array of communications techniques to sway the investor base, but Trian Group always went that bit further. For example, while Heinz followed the webcast debate days later with a point-by-point rebuttal via an emailed press release, Trian immediately refreshed its temporary dedicated website, Enhanceheinz.com, to ram home its case.
Such techniques already have reached Europe, though more concentrated share ownership and cultural differences shade their use on this side of the Atlantic. Nonetheless, the arrival of leveraged buyout firms and hedge funds, as well as the emergence of activism among traditional institutional investors and small-investor organisations, all are spurring more sophisticated communications techniques.
A high-profile example of this was the purchase in late 2005 of Danish telephone operator TDC for €12 billion by a consortium of private equity buyout firms, led by Apax Partners, which operated under the moniker Nordic Telephone Company. In what ultimately became the largest-ever leveraged buyout in Europe, the initial offer was rejected. As with Heinz, the buyout firms set up a temporary dedicated website—Nordictelephone.dk—to make their case directly to investors and to make documents easily available.
Despite pressure to get aggressive, TDC’s management laid low. “A lot of people asked, ‘Why don’t you say more,’ but we didn’t consider any aggressive communication,” says Ib Konrad Jensen, a TDC executive handling communications at the time of the bid. The Nordic Telephone consortium was competing more with alternative buyers than with the incumbent management. Arguably, the management’s approach was vindicated as shareholders ended up with €2 billion more than the original bid, though the CEO and other top executives lost their jobs.
More aggressive communications approaches are on the rise in Europe, says Julie Selby, European director of London-based Lake Isle M&A, which provided proxy services to Nordic Telephone, including the dedicated website. (Lake Isle is the European arm of Innisfree M&A in the US, which advised Trian Group on its Heinz proxy campaign.)
The website “is the most efficient way to communicate with investors, especially as there is always a time issue with a tender,” Selby says. Nordic Telephone is so far the only example in Europe, “but a dedicated ‘attack’ or ‘defence’ website is something we are suggesting more and more to our clients and there are a couple in the pipeline that will include corporates,” she adds. Still, says Mark Hill, managing director of London-based web communications consultant The Group, companies mostly underutilise the web when managing situations like a disputed bid. The model, he says, was provided by computermaker Hewlett-Packard during its highly contentious $19 billion (€15 billion) purchase of Compaq in 2002. “They not only made all kinds of regulatory information available on a dedicated website, but they also adopted a story-telling approach,” he says. “For most companies, their websites are big, messy beasts.”
This is apparent in the current legal dispute between consumer products giant Unilever and Vereniging van Effectenbezitters (VEB), a Dutch shareholder activist group, concerning undervalued preference shares. While Unilever has reams of information available, it’s buried several levels into its corporate website. The VEB, as well as placing fullpage ads in newspapers such as Het Financieele Dagblad, has a quick access link on the first page of its website. In some ways, companies, which are usually responding defensively, are hidebound by the demands of regulatory compliance.
“We are very driven by compliance [for retail investors],” says Pierre de Bausset, head of IR and financial communication at aerospace and defence giant EADS. “We view [our website] as the ideal tool for fair disclosure” for smaller investors, though they haven’t seemed that inclined to use it. (As for EADS CFO Hans Peter Ring, de Bausset says, “I don’t think he’s even spent that much time looking at our website. The only time I’ve talked to him about it is when he approved the budget for an upgrade.”)
Two difficult situations for EADS this year revealed both the uses and the limitations of the website. In September, when state-owned Russian bank Vneshtorgbank acquired 5% of the company, the regulatory documents that EADS had to submit to the Dutch market authority were heavily accessed via the website by professional investors, de Bausset says.
However, when the crisis over delays to the A380 jetliner in its Airbus unit broke last spring, leading to the resignation of EADS co-CEO Noël Foregard, the options were limited. “When you’re in that kind of situation, there is a huge compliance issue,” de Bausset says. Such market-sensitive information must be disseminated broadly and quickly enough to comply with the EU’s Transparency Directive, and posting only on the company website won’t do, he adds.
De Bausset and others also argue that the sell-side analysts are still the key to effective communication.
Mittal Steel was praised for its communications skills during its highly contentious hostile takeover bid for rival Arcelor, using avenues like Mittal TV via its website, which carried executive interviews. But Julien Onillon, head of IR for Arcelor Mittal, says that these were more to help shape the broader public debate. The key for investors was persuading the sell-side.
“The first call I made at 10 a.m. the day we officially launched the bid was to Sylvain Brunet,” metals and mining analyst at Exane BNP Paribas, followed by calls to 20-odd other analysts. As Onillon says, they in turn talk to dozens of their salespeople, who talk to hundreds or thousands of buy-side investors. You then get people like Collette Neuville, president of shareholder activist group ADAM, making your case via the press, he says.
It helped also that Arcelor management made moves that riled the new governance officers at big investors like Caisse des Dépots, which formed a bloc representing 30% of votes. In the end, as Onillon puts it, “you can’t sell a bad argument, no matter how you go about it.”