Mergers and Acquisitions in November 2006, Glarner Kantonalbank (GLKB) Submitted a Tender Offer for Following the Fifth Edition of a Survey All Bank Linth Shares

3 M & A communication 4 Defence against hostile 5 Be prepared! starts on day one takeovers

Prof Dr Müller-Stewens, professor for Hans-Jakob Diem, Partner at Martin Menzi, Swiss Capital strategic management, explains what to Lenz & Staehelin, presents the various Corporate Finance AG, points out take into consideration when preparing defence measures available to that defence preparation is part an M & A communication plan. companies. of good corporate governance.

THE COMMUNICATIONS JOURNAL

IRF Communications AG 14th issue June 2009 www.irfcom.ch 1,500 copies

SUCCESS FACTOR Communication? Mergers and acquisitions In November 2006, Glarner Kantonalbank (GLKB) submitted a tender offer for Following the fifth edition of a survey all Bank Linth shares. After reviewing the proposal, Bank Linth’s Board declined analysing IR Practices worldwide pub- lished by the Bank of New York Mellon the offer stating that valuation was too low and, more importantly, synergies were in January 2009, only 39 % of respond- insufficient. At this point, Liechtensteinische Landesbank (LLB) was welcomed as ents have a written crisis or transactional communication policy in place. In other a white knight and took over Bank Linth in March 2007. Josef Fehr, CEO of LLB, words, at least 60 % of companies in and Thomas Eichler, CEO of Bank Linth, walk us through the process, the merger Europe, Middle East, the Americas and Asia Pacific are not prepared for the rationale and their lessons learned. occurrence of an unsolicited takeover bid. Some of these companies certainly have good reasons why they do not have such a policy. Other may not yet have started to think about catapulting themselves in

a steep learning curve when this scenario Friz, Illux Illustrations: Paolo suddenly appears.

Yet, roughly 70 % of takeovers add little value to the acquirer’s performance. Part of the failure is due to poor or absent communication about the benefits of the change. It is the role of communications to untiringly point out that during significant changes the need and desire for information increases dramatically. Em- ployees, financial analysts, the media as well as business partners ask for timely, thorough, consistent and comprehensible information. Moreover, communication specialists wag their finger to resisting organisations. If they are not ready to provide the information, rumours will fill the vacuum and, as a consequence, management’s credibility, the company’s reputation and quality of service could suffer irreparable damages.

We certainly all agree on the existing downside potential of inaccurate communication. But what this journal in- tends to discuss is the upside potential of “good” communication. In other words, LLB’s long-standing contacts to Bank Linth’s management this publication asks the question wheth- allowed for the fast implementation of a solution taking the interest of all stakeholders into account. er and to what extent state-of-the-art communication contributes to the success Interview with Dr Josef Fehr, However, with Bank Linth’s 23 agen- long before the actual merger in 2007. For of a planned transaction? Furthermore, Chief Executive Officer, cies we built a natural geographic exten- a while already, LLB managed one of are there specific aspects to consider when Liechtensteinische Landesbank AG, Vaduz sion of our own activities in the Principal- their most popular investment funds, the being in the position of the bidder or the ity of Liechtenstein. Together, LLB and Regiofonds Zürichsee. Other forms of co- target? Bank Linth now offer a leading full-service operation had always been a topic in infor- Can you explain LLB’s business strategy and banking franchise in one of the most pros- mal meetings but were not concluded. The opinion leaders represented in this how Bank Linth fits into this framework? perous economic regions of Europe. Fur- journal approach the value of communi- thermore, we believe that the Bank Linth What changed in the contacts you had before to cation from different angles and present Josef Fehr: Already back in 2005, we platform allows us to also accelerate the Bank Linth when GLKB entered the scene? their view. In this 14th issue of “The have defined a corporate strategy that growth of our wealth management fran- Communications Journal”, we identify aims to diversify our businesses across chise. We now see promising signs as Bank The unsolicited bid of GLKB to buy new aspects on how to develop and shape customer segments and territories. In this Linth has full access to LLB’s Private Bank- all Bank Linth shares obviously acceler- an effective communication tool set that context, extending our footprint in the ing and Wealth Management products and ated a process that was already under way. supports managements’ goals. Swiss market has always been an overrid- know-how. Opening an agency focused on Given that we had long-established close ing goal. As we are a market leader in a Private Banking services in Meilen in 2008 contacts to the Board and Management, Enjoy the reading! neighbouring country of Switzerland and is the direct consequence of this strategy. we were quickly able to discuss the situ have close economic ties, we have always ation and to find a solution that was clear- been active in the Swiss market. Also, How did you get in contact with Bank Linth? ly superior to the competing bid for all with LLB (Schweiz) AG we have our af- Dr Michael Düringer, Partner filiate in Zurich since 1998 and Lugano We had been in touch with the Board Please turn to page 2 IRF Communications AG since 2006. and Management of Bank Linth already 2 The ComMunications journal 14th issue June 2009

Continued from page 1 share price increased by more than 6 % staff to convince their customers of the that a more calm and controlled commu- and continued to outperform the market advantage of the transaction. I believe that nication would be more supportive of the thereafter. We also received strong sup- the information event of Bank Linth that cause. In an M&A transaction you always stakeholders; especially for customers, port from our employees and customers. was held before the offering period start- have to bear in mind that the actual clos- employees and shareholders. ed and was attended by some 3,000 share- ing of the deal is not the end point but What were the main challenges in the commu- holders was crucial to our success. Fur- rather the start of the cooperation be- With regards to M&A communication, what is nication process? thermore, we launched an advertising tween two companies. special in the buyer position? campaign in the regional press and estab- I believe that the Bank Linth transac- lished a shareholder hotline that answered What are your lessons learned from the Bank When announcing such a transaction tion was very different in terms of com- all critical questions with regard to the Linth transaction? you are always tempted to focus your munications from most M&A deals you transaction. message to the shareholders of the target can observe in the Swiss market. Bank It is clear to us that in our business company in order to assure that a major- Linth had – and still has – a very frag- GLKB applied a very aggressive communica- only a friendly offer can deliver added ity of shareholders finally tender their mented shareholder structure. There tion approach and even suggested Bank Linth value to stakeholders. In a services busi- shares. But, being a listed company our- were no big or institutional shareholders should not be sold to a foreigner. How did you ness like ours where people are key, an selves, we were careful to shape our mes- we had to convince but a big number – deal with this situation? unsolicited bid risks rapidly destroying sages so that it made sense to our share- some 12,000 – of retail shareholders, who value, which was created over many years. holders and employees as well. Judging were mostly customers of the bank enjoy- Indeed, we felt that their communica- Close cooperation with Bank Linth was by the market reaction on the day of the ing special conditions for Bank Linth tion approach was too aggressive and po- not only crucial in executing the deal but announcement, we were successful with services. So in order to convince all these tentially even pushed some Bank Linth also – and most importantly – in the post- our approach. On December 7, 2006, our people we strongly relied on Bank Linth’s shareholders and customers away. We felt merger integration phase.

a) The hostile takeover bid by GLKB Transaction at a glance had to be fought off; b) Bank Linth would remain on the “bidding block” from now on; Summer 2006 Glarner Kantonalbank indicates interest to merge with Bank Linth. c) LLB made an attractive offer both re- Bank Linth refuses the approach in writing. garding the price as well as regarding the business plan. Nov. 3, 2006 Bernt Arpagaus, CEO of Glarner Kantonalbank, informs Heinz Knecht, Chairman of Bank Linth, in a voice mail that he will launch Consequently, the shareholders fol- a takeover offer at CHF 330 in cash / CHF 130 PS of Glarner lowed the recommendation to offer the Kantonalbank. bulk of their shares to LLB, but hold on Chairman Heinz Knecht responds the same day publicly describing to 10 shares and thus to remain a share- the offer as “unfriendly and not attractive”. holder of Bank Linth. Interview with Thomas Eichler, Chief Executive Officer, Nov. 5, 2006 Chairman Bank Linth states that Bank Linth is not for sale at With regard to M & A communication, what Bank Linth LLB AG, Uznach any price. is special when in the target position? What are your lessons learned from this Nov. 6, 2006 Glarner Kantonalbank launches pre-announcement. transaction? Were you prepared for a defence situation? Nov. 30, 2006 Glarner Kantonalbank launches offer at CHF 480 per share What did you do to prepare for a defence sit- (up from CHF 460). Especially when fending off a hostile uation? takeover bid, the most difficult aspect is Bank Linth rejects improved offer. the lack of time. The bidder dictates the Thomas Eichler: Bank Linth was in- Dec. 1, 2006 Bank Linth shares increase to CHF 520, triggering speculations on pace, the regulatory framework con- deed well prepared. As a regional or com- potential upcoming higher offers. strains many possibilities to react to the munity bank we have always made a bid and consultants from all walks of life point of having very close ties to our Dec. 4, 2006 CEO Glarner Kantonalbank expresses his assumption that a white offer their assistance. That leaves very shareholders, who typically are amongst knight must offer at least CHF 600/share. little time to do the actual work, which our most loyal clients. It is worth pointing is enormous. Three aspects make life out that prior to the takeover battle, Bank Dec. 7, 2006 CEO Bank Linth confirms fighting the offer from GLKB whilst easier under these circumstances: Linth was owned by more than 12,000 St. Galler Kantonalbank examines an offer. shareholders, none of which held more Liechtensteinische Landesbank offers CHF 540 per share in cash. 1. Tell the truth than 2 % of the company’s shares. Fur- If you start window dressing only thermore, we established good relations Bank Linth welcomes merger with Liechtensteinische Landesbank once the hostile bid has been made, it’s with other stakeholders such as regional as making strategic sense and being customer friendly. too late. You don’t have time to rewrite suppliers, public authorities and regula- your corporate history. So you better be Dec. 8, 2006 St. Galler Kantonalbank is no longer interested in a merger. tors. Finally and very importantly, we credible, clear and consistent in your ac- made sure to have a good working rela- Dec. 13, 2006 CEO Glarner Kantonalbank does not believe shareholders tions from day one. tionship with the printed press. will tender to a foreign institution, and is therefore not planning to Several months prior to the launch of increase the offer. 2. Know your audience the hostile takeover bid by GLKB we Knowing your stakeholders helps a noted inexplicable movements in our Feb. 23, 2007 Liechtensteinische Landesbank holds 74.3 % of shares after expiry great deal in understanding how they share price and picked up on some of offer period. will react to new developments. You can «wild» market rumours. We therefore tell them good news and bad in a fac- contacted a communication consultant tual matter and trust that they will un- specialised in such matters to develop a therefore merely sped up a process that What reactions did you have from derstand the news the right way. contingency “battle plan”. That plan was had been initiated earlier. The Board of customers and shareholders when you implemented within hours of the GLKB Directors as well as the Executive Board supported the LLB bid? 3. Rely on your experience and skills announcement. argued at length whether the sharehold- Outsiders add a fresh perspective to ers were better served with Bank Linth There was unanimity amongst all things and serve as valuable sparring What were the key criteria to select and remaining independent or with Bank stakeholders – even the media – that the partners, helping you to work better. approach white knights? Linth becoming part of a stable, benevo- GLKB bid was not attractive by any means. But they cannot make decisions in your lent group. In the end, they concluded Quite a number of shareholders and cus- place. You know the company, the At the time Bank Linth was confront- that Bank Linth would likely remain a tomers expressed their regret that Bank stakeholders, the current mood, the ed with the hostile takeover bid by GLKB, target for takeover bids even if GLKB’s Linth would no longer be an independent quirks better than any outsider ever we had already been in touch with LLB bid could successfully be fought off. It was entity. But almost all of them clearly un- can. Therefore you call the shots. Your for some time regarding a possible future therefore better to seek stability and derstood the arguments put forth by both gut feeling is the key to success more together. The hostile GLKB takeover bid growth potential within the LLB group. the Bank Linth and the LLB boards: often than not. 14th issue June 2009 Mergers and Acquisitions 3

2. Exclusivity versus involvement M & A communication On the one hand, because of secrecy, deals have to be prepared only by a very small group of corporate managers. On the other hand, corporate management starts on day one often does not have the necessary know ledge of the business to take the right decisions. For example, synergy estimations are often wrong because of a lack of detailed technical facts; or there is resistance to realise these synergies because of a cul- tural clash between parties. But having the right experts in the team would not only help to avoid such problems, it would also help to get support for the deal and its integration. The broader the involvement before the closure of the transaction, the stronger the commitment. And in the integration phase, corporate management strongly hinges on the commitment of employees. But besides tactical considerations there are also legal restrictions on what can be communicated about a pending transaction. Even in cases of a broad involvement, the disclosure of a transaction is usually a big surprise. Often the news is fearsome for employees e.g. because of hierarchical relationships, job security or career pros- pects. The challenge is now to communicate the deal to the people to get their buy in the integration phase. There are some rules to follow in such a situation. • Take communications seriously. Tell employees why the company engages in the transaction and why now is the right moment. Focus communications on the creation of meaning for the transaction because people want to control their own fate in face of uncertainty. To avoid an information overload, do not get lost The highest level of confidentiality is absolutely necessary in the early stage of every transaction. in explaining all details; focus on explaining the purpose and the key elements of the planned transaction. Mergers and acquisitions are central elements of corporate strategy implementation. • Do not allow rumours to spread. If pos- Yet, the transaction itself typically is a special situation for most companies and bears sible correct emerging rumours based on official facts. Try to communicate a number of risks. Targeted communication measures help to successfully execute an proactively to avoid rumours. M & A transaction and lay the foundation for the post-merger integration process. • Address the concerns of employees through the use of many different and appropriate communication channels. Prof Dr Günter Müller-Stewens, M & A have to be “sold” to multiple later and their price can be significant: lost Deal with the chances and risks mem- Director Institute of Management, University of target groups: People who have the idea credibility, lawsuits, job resignations or bers of staff see for themselves, for their St. Gallen, Editor of the “M & A Review” for such a deal have to “sell” it to the com- missing support for the integration. direct work environment and for the pany’s senior management; if accepted, There are two typical communication company. top management has to “sell” the deal dilemmas a company faces in an M & A • Give the deal a face by showing the re- proposal to the firm’s board of directors; situation: sponsible persons and involve them in a n 2008, almost every day of the if accepted, the owners and management constructive dialogue. year a Swiss company was involved of the target company have to be con- 1. Secrecy versus disclosure • Integration management needs strong I in an M & A deal. Growth fantasy vinced about the rationale of the deal; if On the one hand deals have to be devel- leadership on all levels of the organisa- is among the key value drivers of a com- they agree, employees of both firms have oped under the pledge of secrecy. This tion. A constitutive component of a pany. Defining its growth strategy is at to be persuaded that they should invest secrecy is protected by “organisational strong leadership is intense direct com- the heart of each corporate strategy. their time and motivation in the execu- firewalls” like code names, separate of- munication. M & A are – besides internal growth and tion of the post-merger integration. In a fices or tagged deal documents. This se- • Keep people continuously informed cooperations – a central mechanism to big and complex transaction many other crecy is absolutely necessary in the early about the progress of the integration realise such a growth strategy. But M & A stakeholders – like the public, politicians stage of a transaction to prevent other process. Show “early wins” to create are not a goal in themselves. Transac- or NGOs – demonstrate their interests in companies from capturing the idea for trust in the rationale of the transaction. tions should always be used as a tool to the transaction. In an M & A deal there are their own purposes. A too early commu- • Communications are not only based on implement a corporate strategy. Even twice as many parties involved as in nor- nication of a deal also creates unwanted voice. Symbols, gestures or pictures also opportunistic transactions should make mal corporate communication situations. rumours and volatility in the capital mar- send a message to the public – intended sense in the broader context of the cor- This is because you have to deal with two kets. On the other hand and apart from or unintended. porate strategy. sets of stakeholder groups – one on the legal restraints, a company has to com- • Be careful about not communicating, M & A are an activity full of risks. We buyer side, and another on the target side. municate a planned deal early enough, to because it is also communication and all know that the majority of M & A trans- This complexity shows that commu- give shareholders and other stakeholders will be interpreted. actions never deliver on promises. One of nications are not an afterthought to be a chance to take up their stance on the Each transaction is unique. Using the challenges to make an M & A transac- dealt with after closing the transaction. transaction plan. If the disclosure comes standard communication procedures does tion successful is communications. M & A Communications have to be taken ser very late, the probability increases that not account enough for the situation and decisions and their acceptance are based iously from the early stages of the plan- information leaks appear and the deal the stakeholders involved. This means on expectations, and expectations are ning of a transaction. Early communica- makers lose control over the communica- M & A communication must be tailored shaped by communications. tion failures can often not be corrected tion process. to the particular challenges of each case. 4 The ComMunications journal 14th issue June 2009 Defence against hostile takeovers

Unfriendly tender offers and stake buildings have become a common feature of the Swiss market in recent years. Defence preparations and defence tools are therefore an important topic for Swiss listed companies.

Hans-Jakob Diem, rechtsbeschränkung). The resulting diffi- members will be up for re-election each defences, is significantly constrained by Partner, Lenz & Staehelin, Zurich culty or even impossibility to exercise year. Approximately one fifth of all Swiss the Swiss takeover rules which prohibit, control in the shareholders’ meeting is an listed companies have opted out of the for instance, the acquisition or disposal of efficient tool to defend against activist mandatory tender offer rules or adopted assets in excess of 10 % of total assets or ostile tender offers and un- shareholders, as the recent examples of an opting-up (i.e., increased the thresh- contributing more than 10 % to the prof- friendly stake buildings have Implenia and Sulzer show. However, old). If an opting-out or opting-up exists, itability of the target, or the acquisition or H become frequent in Switzer- these restrictions are not a foolproof de- a raider may exceed 33 % of the votes of disposal of treasury shares and the issu- land in recent years. While such transac- fence against unsolicited takeovers. If a the target without being required to make ance of shares, conversion or option rights. tions may be in the interest of the target tender offer is perceived to be sufficiently an offer to the minority shareholders. A Therefore, such measures are rarely im- and its stakeholders in the specific case, attractive, the target board may decide to company with an opting-out or opting- plemented in Switzerland. The more experience shows that unfriendly offers call a shareholders’ meeting and the share- up should consider opting into the rules relevant and often successful way to de- are often submitted at a relatively low holders may be willing to abolish the re- by changing its articles accordingly. fend against a hostile bid or an unfriendly price, while unsolicited stake buildings strictions. For that purpose, the offerer There are a number of other defence activist shareholder consists in the search may give the raider de facto control with- will typically include a condition prece- measures which are frequently discussed for white knights and white squires. The out an exit opportunity for the minority dent in its offer. during the preparations, such as the intro- target might also consider rejecting a raid- shareholders. Against this background, In order to strengthen their share duction of golden parachutes for mem- er’s request for entry into the share ledger defence preparations and defence tools transfer or voting right restrictions, some bers of management, of change of control on the basis of the argument that the have become an important topics for companies have introduced supermajor clauses in important commercial con- raider is not the beneficial owner of the Swiss public companies. ities in their articles of association which tracts or of authorised share capital per- shares or its registration as a shareholder require qualified quora for the removal of mitting the board to withdraw pre-emp- with voting rights requires prior merger The readiness is all the restrictions, for instance an approval tive rights in case of a hostile tender offer. clearance by the competent antitrust Unsolicited offers and stake buildings by 25 % of all issued shares. Supermajor In order to be permissible, such measures authorities. Further, initiating legal pro- often occur surprisingly, with little or no ities are an efficient tool to prevent un- must be in the company’s interest and be ceedings has become a significant tool in lead time. Preparation is therefore key. friendly tender offers and stake buildings. supported by valid commercial or busi- recent situations. Such proceedings may, For the purpose of preparation, many However, they may also impede friendly ness reasons. If implemented with the for instance, be based on alleged viola- Swiss companies have established De- transactions and should therefore be con- mere aim of defence, such tools may be tions of disclosure duties. Under the new fence or M & A Manuals. These hand- sidered carefully. critical from a corporate law perspective. takeover rules which entered into force books are prepared, and from time to A possibility to defend against a sur- on January 1, 2009 and strengthened the time revised, by a committee of the board prising change of control on the board Defence measures in an procedural rights of target shareholders and the management with the assistance level consists in the introduction of a stag- unfriendly situation holding more than 2 % of the voting of outside advisers such as investment gered board, where the tenures of office Once an unfriendly offer has formally rights, the target may also consider seek- bankers, PR/IR advisers and specialised of the board members expire in different been made, the ability of the target board ing support from qualifying shareholders lawyers. The preparation and the result- years (e.g., one third each year). As a re- to adopt typical defence measures, such as as parties in the proceedings before the ing “education” process for directors and sult, only a limited number of board scorched earth, Pacman or crown jewel Takeover Board. officers may take several weeks. The manuals often cover four principal areas, namely organisation and measures prior to a hostile situation, organisation and measures in case of a hostile situation, an enterprise valuation and an analysis of Manage the process possible raiders, white knights and white squires. Mergers and acquisitions are central elements of corporate strategy implementation. The importance of PR and IR Yet, the transaction itself typically is a special situation for most companies and bears PR and IR aspects are obviously import ant elements both in the preparatory and a number of risks. Targeted communication measures help to successfully execute an in the defence phase. In “times of peace”, M & A transaction and lay the foundation for the post-merger integration process. PR and IR efforts aim at creating a positive corporate image and goodwill and at building a solid shareholder base in order Jan Gregor, Partner, success of a transaction. But communi- Even in M & A situations communi- to ensure support in the event of an attack IRF Communications AG, Zurich cation professionals should beware since cations are not a black box that cannot and, importantly, sustain a fairly valued shareholders of the target company will be controlled. Companies can prepare share price. In the defence phase, PR and form their opinion based on pure eco- for such events. Communication meas- IR a decisive factors to regain the initia- trengthening the market posi- nomic terms, i.e. the price offered. In- ures and tools may be prepared well in tive as quickly as possible. Therefore, tion lies at the core of any corpor vestors of the bidding firm, however, advance in order to use them at the push Defence Manuals often set out detailed S ate strategy. This may be achieved are more critical. For them, the strategic of a button. Three success factors are procedures and draft press statements for organically, through investments in in- rationale of the transaction and the po- identified: the first 24 hours after an unfriendly situ- novation and distribution, but also ex- tential for added value need to be con- ation has arisen. ternally through acquisitions. Conse- vincing. Management of the bidding 1. Integrate communication in the quently, the speedy realisation of growth firm has to balance the interest of its planning and preparation phase Preparatory defence tools strategies is a key motive for M & A. own shareholders for a value-adding M & A transactions of listed companies There are a number of possible legal de- But, in the wake of demographic changes, transaction while convincing the share- are subject to a stringent regulatory re- fence tools which may be considered in the access to skilled personnel has re- holders of the target company of the gime. Thus from the start, the communi- the preparatory phase. The preferred pre- cently become an additional driver for attractiveness of their offer. By experi- cation strategy should be coordinated paratory tool consists in share transfer M & A . ence, the immediate share price reac- with the legal strategy. What needs to be restrictions (Vinkulierung). Typically, the Polished press releases and presenta- tion of both companies after the an- done is first an event-driven communica- articles of association provide for a per- tions will not save an ill-conceived nouncement provides a solid judgment tion plan whose rhythm matches the centage limitation, e.g. 3 % or 5 %. In transaction, but poor communication of the transaction and is indicative for regulatory regime. Secondly, the neces- many cases the transfer restriction is com- may jeopardise the value of a sensible the long-term share price develop- sary communication tools such as press bined with a voting restriction (Stimm one. Communications is central to the ment. releases, presentations, etc. need to be 14th issue June 2009 Mergers and Acquisitions 5

prepared. Finally, different scenarios should to be taken into account. Be prepared! 2. Communicate the full story and include unambiguous targets Opinions are formed quickly; it is next Defence preparation is part of good corporate governance for every listed company to impossible to change opinion leaders’ whose shareholder structure allows for takeover approaches. The fact that defence minds once they have taken a position. As a result, communication efforts on scenarios are on the board’s agenda is already a first achievement. the announcement day need to deliver a credible, full story including unambiguous financial or operational targets Martin Menzi, Senior Partner, with its fiduciary responsibilities under sight and reveal hidden block build-ups in order to assure an immediate impact. Swiss Capital Corporate Finance AG, Zurich the respective legislations. by an interested party. Recent examples, Buzzwords such as “convergence”, “sig- such as Saia Burgess, Implenia or Sulzer, nificant synergies”, “profitable growth”, Think first showed strong movements in share own- or “creating shareholder value” without ith financial markets world- Although the basic principles appear ob- ership and volume before unsolicited at- any supporting facts and timing must be wide in bad shape and valu- vious, looking back on recent cases it tacks or full takeover bids were launched. avoided because such unsupported buzz W ations at levels not seen for seems that many defence communication Also, specific trading patterns in regis- words transmit alert signals to investors. many years, developing defence scenarios teams were not aware of them. Yet, lack tered and non-attributed shares were re- Eventually the bidding company hast to is a current topic for responsible board and of awareness may not be the appropriate corded. convincingly explain how expected syn- management teams who want to be pre- explanation. Most likely they were poorly ergies (revenue synergies or cost syner- pared once a battle breaks out. Including prepared to the situation and acted in a Existence of a value-based threat? gies) cover the takeover premium of- this item on the agenda triggers sensitisa- rush, not determining and thinking about A potential undervaluation increases an fered. tion with the topic whilst diminishing the the goal of their actions. organisation’s attractiveness as an acquisi- surprise effect. In any case, board mem- tion target. The question is whether the 3. Avoid unnecessary uncertainties bers start to think about the value of self- Analysing and monitoring share- sum of the values of each individual busi- Some uncertainty lies in the nature of determination and preparedness. holder structure ness and development project equals the each and every M & A transaction. But Correspondingly, one of the first It starts with profiling current and poten- company’s overall valuation, as deter- additional speculations and rumors that questions executives have to address is tial shareholders that may buy into the mined by the market, i.e. the share price. could complicate or even obstruct the how to react in case of friendly or un- stock. Right from the beginning it is im- A lower overall valuation would point to post-merger integration process should friendly approaches. The aim is not to portant to detect informal groups within a value gap. Irrespective of whether this be avoided with the announcement of prevent a takeover per se, as it is an emi- the shareholder base. As a second step, gap results from insufficient communica- the merger. Employees need to be nent part of a market system. First, it is to also as meeting preparation, the team tions or a difference of opinion on further informed carefully but openly about po- protect shareholders from unfair or inad- should learn about their shareholders’ in- developments and the relevant cash flows, tential redundancies as a consequence of equate takeover offers and abusive tac- vestment background in order to better management will have to emphasise its a merger. Major uncertainties may de- tics, which is a major responsibility of understand their individual perspectives arguments towards these stakeholders. stroy value as demotivated employees each company’s board. Secondly, appro- and expectations. Knowing the counter- may seek alternative career opportun priate preparation increases the board of part’s situation helps a lot to build rela- Emergency planning ities. Consequently, communication directors’ control over an unsolicited ap- tionships and create loyalty. Having to start from scratch distracts the needs to aim at preserving all assets of the proach by enhancing its negotiating le Thereby, non-attributed shares need team from focusing on the real important target company; including employees as verage and flexibility. Thirdly, it protects to be observed and monitored closely. well as customers and suppliers. the board of directors’ ability to comply Any developments could give further in- Please turn to page 6

The IR team has to ensure a communication and an emergency plan are in place. 6 The ComMunications journal 14th issue June 2009 Difficult times create challenges

The environment for M & A transactions has changed significantly over the last years. Not only fewer deals get done, also some pre-financial crisis trends became even more relevant and now present additional communication challenges for deal makers.

Ivo Lingnau, Managing Director, Preparation improves the latory reasons, or dealing with the target’s Activists build on public pressure Financial Dynamics, Frankfurt communication output change of control clauses. The deal maker Shareholders who want to capitalise on Nowadays, likely targets are better off be- must be able to cope with detailed exam M & A situations potentially cause further ing prepared and doing their homework in ination of the deal structure as well as to communication needs for deal makers. On terms of defence planning. This takes away secure the support of his own shareholders the one hand, the large number of event- irst of all, the media landscape has two bidder advantages: the element of sur- and other crucial stakeholders. driven investors is helpful, because when significantly changed. As online prise and the target’s loss of crucial mo- they oversee a large volume of shares, the F media become more and more mentum at the beginning of the process. Avoiding any intercultural missteps likelihood of a successful deal increases. important, the traditional news cycle Targets have thus a better chance of avoid- Increasingly, transactions are cross-bor- On the other hand, activist shareholders driven by evening TV news and news- ing grave communication errors in their der deals adding an international dimen- will do everything they can to force a high- papers delivered every morning looks first reaction to a bid announcement. sion and posing specific communication er offer or more favourable terms. pale in comparison. The focus of tradi- On the other hand, this implies for the requirements. First, there is the likely The threat or implementation of public tional print media moves to “online first” deal maker that he needs to put even lack of profile and position of the bidder pressure is the main instrument of influ- coverage increasing competition among more effort in the preparation of com- in the target company’s home country as ence for activists. Consequently, they will media outlets to get the scoop and break munication and messaging, anticipating well as potential country-specific com- search for any legal and procedural attack stories first. A growing number of stories the defence storyline and defining how to pliance issues. On a practical level, it points and therefore increase the pressure are based on anonymous sources and react to likely strike-backs: i.e. by creating adds coordination and resource require- on communication management. The deal leaks. Additionally, even business media a detailed messaging scenario of arguments to manage communication in two maker might face a blackmail attempt – i.e. tend to concentrate on personalities. Es- ments and counterarguments. or three languages and across time zones. threatening a minimum acceptance thresh- pecially in high-profile M & A situations The deal maker is forced to undertake old or legal challenge. He therefore needs does a combination of all these trends Rumours become more frequent rapid profiling and positioning efforts in to keep track of shareholders who get in- have an impact. In a time when leaks in the run-up to a the target market and avoid any potential volved to assess the risk and likely courses Looking at the way transactions are deal announcement seem to become the intercultural missteps. In a hostile scen of action by investors. carried out, one can detect a return of un- norm rather than the exception, a leak can ario, he will also need to deal with the Finally, the current financial markets solicited or hostile takeover bids. By def result in major communication challeng- target’s mobilising activity in his home environment creates a metachallenge that inition this changes the communication es. It can induce the bidder’s lost ability to market. influences and summarises most of the dynamics considerably. In a friendly ac- define timing and agenda, thus launching points mentioned above. The main issue quisition scenario, interests of key players the transaction before the time is right. Non-financial stakeholders articulate is the dramatically increased strategic and – bidder, target and seller – tend to be Furthermore, it can cost the bidder’s first their interests execution risk of the transaction which aligned, as they want to present the ra- mover advantage due to legal or financing Currently, as a result of the financial crisis, has a number of implications: tionale of the transaction in a format that restrictions forbidding the bidder any of- the interaction and the influence of non- convinces shareholders, business partners ficial communication. Therefore, a deal financial stakeholders increase. As nation- • The strategic rationale and story need to and employees. Such a scenario allows the maker needs to evaluate approach tactics al industrial policies with a particular fo- be very convincing to address concerns coordination and the management of the carefully and prepare leak statements that cus on jobs and taxation gain importance, regarding the execution risks; takeover process with clear timing, a de- reflect possible scenarios. politicians, unions and interest groups • The financing of a transaction will be fined set of stakeholders and limited po- will engage in the takeover process. Legal permanently questioned until payment tential for disturbing actions. In a hostile Innovative transaction structures restrictions continue to limit direct influ- has been made; scenario you face a public dispute of op- add complexity ence, but indirect influence through posi • The communication with the bidder’s posing interests. Whatever happens will More complex transaction structures in- tive or negative comments cannot be own stakeholders becomes more im- have a high impact on the public percep- crease the need for detailed communica- underestimated. Mobilising employees portant as they need to be reassured tion and the reputation of the people in- tion and explanation. Clearly, some trans- remains a key defence tactic in hostile about the transaction’s progress; volved – there will be winners and losers. actions are only possible because of innova- takeovers. Hence, the deal maker must • Finally, the communication scenario Additionally, the ability to plan and man- tive and complex financing and transaction aim to secure political support including planning must not only include reac- age process and timing will be limited and structures. This might involve the use of all stakeholders in a proactive communi- tions for interventions by any critic but you can count on possible third-party in- derivatives for pre-bid stake building, ear- cation approach and try to win over the also an exit strategy if the transaction tervention. marked divestments for financing or regu- target’s business partners early. cannot be closed successfully.

Continued from page 5 to the announcement of a full offer. A vestors decide on economic terms offered, shareholders when required. Good rela- quick reaction enhances a professional i.e. on the price. In contrary, PR has a sub- tions to current and potential investors impression which further contributes to a stantial impact on the reputation of the established on a regular basis allow the questions. As first preparation it is the IR positive perception of the own views by board and of executives involved in the company to communicate its story and team’s major goal to ensure that the com- opinion leaders and the public. On the takeover battle. In addition, PR is essen- arguments 1:1. Moreover, this direct dia- pany’s equity story is understood by in- other hand, it is pivotal that the company’s tial for an efficient and smooth integra- logue allows the management to feel dir vestors as well as by the public. In addi- initial bid response leaves full flexibility tion process following the acquisition. ect sentiments of the investor base and to tion, it has to ensure an emergency plan for later decisions and moves. In other State-of-the-art internal communication gauge defence tactics with them. But is in place. On day X, it is beneficial if the words, do not use arguments that, in a is required to build the best teams from again, keep in mind that investors will board already has draft documents avail- later stage, limit the scope of actions avail- both competence centres whilst taking weigh economic terms offered first and able in its drawer. A dedicated communi- able, e.g. “we will never let xy acquire our advantage of uncovered synergies. This foremost. Therefore, the goal of effective cation team, including the assigned company”. change process bears a lot of chances if communications is to set basic parameters speaker of the board, is well advised to properly accompanied by open and trans- and supporting conditions to maximise have a set of press releases and letters at Role of communications parent information. Otherwise, uncer- the valuation of a company – not more, hand, addressing the public, the bidder, When thinking about the impact of com- tainties will threaten the targeted ratio not less. Communication efforts are de the shareholders as well as the employees. munications, it is worth taking a separated nale of the deal. cisive for an efficient opinion-making Different releases should tackle the scen view for each PR and IR discipline. PR With regards to IR, the positive im- process and successful execution of the arios of a) substantial rumours, b) private – as far as the outcome of the battle is pact of these efforts is to provide manage- own strategies. They pave the way for full (not publicly communicated) approach concerned – has a limited impact, espe- ment with flexibility: IR supports an flexibility and fast implementation of de- by the bidder and c) immediate response cially due to the fact that professional in- efficient and open dialogue with key cisions taken once required. 14th issue June 2009 Mergers and Acquisitions 7 Recent transactions in Switzerland

The following portraits summarise recent major takeovers with the involvement of a Swiss company. They provide a comprehensive set of lessons learnt, i.e. regarding the buyer’s motivation and tactics as well as the target’s defence strategies.

Dr Michael Düringer, Partner, and quired Giorgio Behr’s stake for CHF 154 On February 19, 2007, Scor, a French through a combination of shares and op- Andrea Ullmann, Consultant, million and made an offer of CHF 435 per reinsurer, surprised with the announce- tions. This stake forced the company to IRF Communications AG, Zurich share to the remaining shareholders. ment of its 32.9 % stake in Converium launch a public offer to all shareholders and its tender offer of CHF 21.10 per for the remaining shares. After initially Conclusion share (comprising 0.5 new SCOR shares offering CHF 93.42, a discount of around Do not blindly trust majority shareholders even plus CHF 4.00 in cash). Martin Ebner and 26 % to the price paid to Laxey, the com- Ciba acquired by BASF, 2008 if they express good intentions. They may his investment company Patinex took an pany raised its offer to CHF 110 per share change their minds and catch you on the wrong important hand in the deal making. After aligning it to the traded share price. Until March 2009, Ciba was an independ- foot. A defence strategy, i.e. an up-to-date restructuring the company two years be- ent Swiss speciality chemical company pro- valuation, and a clear idea regarding potential fore, he sold his 20 % stake in the com- Conclusion ducing chemical additives for the plastics, white knights are crucial. pany to Scor and facilitated the sale of Activist shareholders often set different prior paper and coatings industries. The com- additional shares. ities: Whilst Laxey favoured significant capital pany, active in more than 120 countries Converium’s Board unanimously re- reductions resulting in immediate capital gains, around the world, generated sales of CHF Implenia opposed Laxey, 2007/08 jected the offer stating that it was too low Saurer Management intended to invest 5.9 billion and invested more than CHF and that the merger bore significant op- this money in buying rival companies, which 230 million in R&D in 2008. Implenia is Switzerland’s largest construc- erational risks. At the same time, Man- should have helped it to resume top- and On September 15, 2008, BASF made tion and building services provider. In agement initiated an important defence bottom-line growth. In the wake of the eco- a friendly cash offer for Ciba for CHF 50 2008, the company generated sales of deployment and looked out for white nomic downturn things look different. per share, offering a premium of 32 % CHF 2.3 billion with a total workforce of knights. over the last price traded and valuing the almost 5,200 specialists. After three months of acrimonious company at CHF 6.1 billion. Starting in the first quarter of 2007, fight and after Management could secure Leica Geosystems acquired by Ciba had disappointed analysts and the British hedge fund Laxey Partners significant golden parachutes, the Board Hexagon, 2005 investors by repeatedly not reaching its built a stake in Implenia AG calling for a of Converium surprisingly accepted an targets. After reporting a loss for the sec- strategy change in the company. Implenia improved offer of CHF 23.20 per share Leica Geosystems was best known for its ond quarter of 2008, Ciba had announced partly denied registering the correspond- (cash component increase to CHF 5.50) broad array of products that capture spa- it might sell certain business units in order ing voting rights, saying Laxey infringed plus participation in the CHF 0.20 divi- tial information accurately, model it to return to profitability. the country’s disclosure obligations. Im- dend for Scor shares. quickly, analyse it easily, as well as visual- After initial opposition by the activist plenia argued that the fast build-up of a ise and present it efficiently. Based in shareholder Adriano Agosti and investor stake of more than 22 %, which was not Conclusion Heerbrugg, Switzerland, Leica Geosys- Bestinver, BASF secured the required traceable in stock market transactions, in- Being prepared to vigorously oppose an tems was a global company supported by two-thirds stake in Ciba’s share capital. dicated arrangements with other market initial bid can result in a better result for the more than 3,500 employees in 28 coun- participants. shareholders. tries and counting hundreds of partners Conclusion In November 2007, Laxey launched a located in more than 120 countries around Defining common interests and strategies with takeover offer for Implenia at CHF 33.23 the world. the board of the target company early on per share clearly below the previous day’s Saurer acquired by OC Oerlikon, 2006 Hexagon AB (publ.), a Swedish com- facilitates a smooth takeover and paves the way closing price of CHF 36, valuing the pany active in engineering, metrology for an efficient integration process. Swiss construction group at around CHF Previously, Saurer AG was an independ- and polymers, launched on June 27, 2005 614 million. The bid was conditional on ent Swiss textiles machinery and car parts a public tender offer for all publicly held Implenia changing its statutes and remov- maker. Today, Oerlikon Saurer presents registered shares of Leica Geosystems sia Abrasives acquired by Bosch, 2008 ing the cap on Laxey’s voting rights. At itself as a preferred partner for machines, Holdings Ltd. Its original bid was CHF this point, Laxey already held 33.4 % of software and complete solutions in vari- 440 per Leica share, valuing the com- sia Abrasives develops, manufactures and the stocks, forcing it under Swiss law to ous textile applications with a special pany at about CHF 1 billion. But Leica markets complete abrasive systems for launch a bid for the entire group. focus on twisting and embroidery. rejected the offer, arguing that it was the surface treatment of every type of In March 2008, Laxey reported it In March 2006, ahead of Saurer’s An- priced too low. workpiece. The company employs ap- only had acquired 4.1 % Implenia shares nual General Meeting of shareholders, Leica Geosystems’ Board of Directors proximately 1,250 persons worldwide during the offer period. Furthermore, the British hedge fund Laxey Partner, advised company shareholders to accept and is represented with partners in over since Implenia’s Board refused to fully which owned a 20 % stake in the com- the friendly bid of white knight Danaher 80 countries. In 2007, sales amounted to register shares held by funds under Lax- pany’s share capital at that time, submit- from the United States amounting to CHF 298 million. ey’s management, it decided to end the ted a proposal for a capital reduction and CHF 500 per share and entered a transac- In April 2008, Giorgio Behr, a financial offer. Shortly thereafter, the Swiss Federal suggested a payout of CHF 9.45 per share, tion agreement with this company. In investor, acquired a 22 % stake in sia Abra- Banking Commission (SFBC) confirmed well above the company’s plans of CHF August, Hexagon increased its offer to sives in consultation with the company’s that Laxey had acquired its stake in Im- 1.80 for each share. In a separate press re- CHF 440 in cash plus five B shares of Board. At that point, Giorgio Behr sig- plenia by illegal means. lease, Laxey said that the proposed payout Hexagon, which increased the bid to nalled he did not wish to increase his hold- and capital reduction were a first step to CHF 594 giving Leica a valuation of ing, discouraging potential buyers. Rough- Conclusion address Saurer’s “capital structure issue” nearly CHF 1.5 billion. Due to Hexagon’s ly four months later, Behr Bircher Cell- Clever legal strategies are crucial in defence indicating it would support further buy- raised offer, the Board of Leica agreed pack, Giorgio Behr’s investment company, situations. PR professionals may win back programmes. Laxey also called for a with Danaher to end the transaction announced it held 38 % of sia Abrasives. over media and public opinion, but not neces- strategic review at Saurer and proposed agreement with immediate effect. Since his stake exceeded 33 %, Giorgio sarily on the company’s investors. the election of its Chairman Preston Rabl Behr was obliged by Swiss law to make a to the Board. public tender offer to all shareholders, In August, Laxey Partners further in- Conclusion which he priced at CHF 385 for each re- Converium acquired by Scor, 2007 creased their stake in Saurer to over 25 % Never say no! At the very end, maining share (a 10 % premium on the shortly before surprisingly selling it to investors will weigh economic terms offered previous day’s share price). The Board de- Converium was a Swiss reinsurance com- white knight OC Oerlikon, a Swiss tech- with alternatives. clined the offer stating that it wanted to pany, employing about 500 people in 15 nology conglomerate formerly known as evaluate more reasonable offers with re- offices around the globe. The company Unaxis Holding AG and controlled by gards to price and industry engagement. was organised in three business segments: the Austrian investors Georg Stumpf and Unaxis controlled by Victory, 2005 sia Abrasives convinced Bosch, the glob Standard Property & Casualty Reinsur- Ronny Pecik. With the stake of Laxey, for ally leading automotive supplier, to act as ance, Specialty Lines and Life & Health which it paid CHF 120 per share, OC Unaxis, today renamed Oerlikon Group, a white knight. The German company ac- Reinsurance. Oerlikon held 50.2 % of the voting rights is one of the world’s leading high-tech 8 The ComMunications journal 14th issue June 2009 industrial groups specialising in ma- the legislator has reacted and tightened the Forbo opposed CVC Capital COMPANY PORTRAIT chine and plant engineering. The com- disclosure obligations. Partners, 2004/05 pany offers pioneering solutions for the productions of thin-film silicon solar Forbo is a leading producer of flooring sys- modules, textile production, thin-film Saia Burgess acquired by Johnson tems, adhesives, as well as power transmis- coatings, and drive, precision and vacu- Electric, 2005 sion and conveyor belt solutions. The com- um systems. With a workforce of al- pany employs some 6,500 people and has most 18,500 at 180 locations in 37 dif- Saia-Burgess was the leading supplier of an international network of 44 sites with ferent countries, the company’s sales stepper motors, switches, actuators, and production and distribution as well as 51 reached CHF 4.8 billion in 2008. electronic controllers to customers within pure sales organisations in a total of 35 In the first half of 2005, Victory Indus- the automotive, industrial and infrastruc- countries worldwide. Today, Forbo Hold- IRF Communications is a leading pro- triebeteiligung AG, Vienna, continu- ture automation industry. With headquar- ing still operates independently and is listed vider of communications services for eco- ously built up a majority stake in voting ters in Murten, Switzerland, and engineer- on the SIX Swiss Exchange. nomic and capital market issues. Its service rights of Unaxis through a combination ing and manufacturing locations in Europe, In November 2004, CVC Capital Part- range extends from strategic consulting to of the registered shares and option North America, Africa and Asia, the com- ners repeatedly expressed its interest in conceptual input all the way through to the rights. At the extraordinary General pany employed over 3,700 people world- Forbo, without actually making an official implementation of individual communica- Meeting of Unaxis held on June 28, wide in 2004. Today, Saia Burgess is fully offer for the company. A first indicative of- tion measures. The company’s main fields 2005 and requested by Victory, all ex- integrated in the Johnson Electric Group. fer stood at CHF 330 per share. Later it of expertise are: isting members of the Board of Direct In July 2005, Saia Burgess was approached was raised to CHF 350–370 per share. Fi- ors of Unaxis with the exception of by the Japanese coil company Sumida, nally, the official offer, announced in early • Positioning of institutions and individuals Thomas P. Limberger resigned from which offered CHF 950 per Saia Burgess March 2005, amounted to CHF 260 per • Crisis communications office. Instead, Dr Mirko Kovats (as share. Management rejected the offer share valuing the company at around CHF • Financial communications Chairman), Günther Robol, Christian stating that the price offered did not re- 705 million. Already in February 2005, • Media relations Schmidt and Georg Stumpf were newly flect the value of the company and ques- Swiss entrepreneur Michael Pieper, who • Analysis & insight elected to the Board of Directors. tioning the synergies between them. built up a 25 % stake in Forbo, requested Thomas P. Limberger took over the Management also signalled that they the bidding process for control of the com- IRF Communications offers custom- function of Unaxis CEO as of August would prefer a Swiss solution. Neverthe- pany be stopped. Subsequently, Forbo’s ised communications solutions. Its team of 1, 2005. In addition, the proposal by less, when in August 2005 Johnson Elec- Board of Directors, who stated that it pre- specialists provides clients with professional Victory to reinstate the statutory ex- tric launched its cash tender offer to fers Forbo to remain an independent com- expertise and contacts as well as support emption from the duty to make a full acquire all outstanding shares of Saia- pany, asked its shareholders to vote on the with public and investor relations. IRF tender offer was approved. In a letter Burgess, it was welcomed as a white offer at the occasion of an extraordinary Communications analyses situations as dated July 1, 2005, the Swiss Federal knight. The offer price of CHF 1,060 per General Meeting. Shareholders followed well as requirements and communicates its Banking Commission dismissed an ob- share valued the company at approxi- Michael Pieper abolishing the voting rights results openly and transparently. As of the ligation by Victory to make a public of- mately CHF 695 million. restriction of 8 % of the company’s share company’s credo, effective communications fer for the outstanding shares of Unaxis capital. This action resulted in the with- is based on leadership and commitment Holding Inc. Conclusions drawal of CVC Capital Partner’s offer. from the decision makers, transparency, Firstly, once involved in an M & A battle, systematic management of relevant rela- Conclusion many primarily financially and not entrepreneur- Conclusion tionships and contacts, continuity of policy/ In order to ensure a fair market system, a clear ially oriented investors turn the company in Indicative offers can materially differ from avoidance of one-off actions as well as co- and transparent regulation of the stake- the cue ball of the financial markets. Secondly, official bids. Furthermore, large shareholders can herent, one-voice communications. building process is pivotal. In the meantime, nationalistic arguments do not convince. help fighting off unwelcome takeover offers. IRF Communications has a qualified and experienced team with an interdiscip order Form linary background. The consultancy team’s knowledge is based on a wealth of practical experience in accompanying businesses, in- 9th issue: Timing issues in IR stitutions and individuals through a wide variety of situations. IRF Communica- 10th issue: Capital market transactions tions’ experts also have experience of the practical challenges from the business side Print run: 11th issue: Crisis communications and are able to provide clients with effi- 1,500 copies once a year cient, solutions-oriented support. The 12th issue: Shareholder activism measures and platforms developed for each project are tailored precisely to the needs of Publisher: 13th issue: Reputation management the client. The company also maintains a IRF Communications AG wide network of contacts with specialists in Rämistrasse 4 14th issue: Mergers and acquisitions research, practical and academic circles. P.O. Box CH-8024 Zurich Surname Telephone: +41 43 244 81 44 Fax: +41 43 244 81 45 Name www.irfcom.ch [email protected] Company IRF Communications is the Swiss partner Editorial: Address of FD International, one of the world’s Michael Düringer leading communications consultancy companies, which is based in London and has Telephone Contributors: representatives in more than 20 countries. Jan Gregor IRF’s Swiss clients thus have access to the Andrea Ullmann E-mail world’s major business centres through FD International’s global network. By the Illustrations: Number of copies same token, IRF provides international Paolo Friz (at Illux) companies with direct access to the Swiss media and the Swiss capital market. Layout: Please send this order form to: Atelier Frei IRF Communications, Rämistrasse 4, P.O. 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