By Carlos Keener, Founding Partner, BTD Consulting
Those leading on M&A have to emulate the very best of the circus plate-spinners, keeping lots of lots of different aspects of the M&A process alive at the same time, and not letting any crash to the ground. One of the plates that needs to be looked after carefully is share price.
Share price value will generally increase following a merger or acquisition provided the market believes the deal delivers a more profitable business. Everyone intends their M&A to add value, and if they buy and integrate well, it will. But share price can be a tricky plate to keep spinning. It isn’t enough just to tweak it from time to time. Take your eye off it for a moment and it could teeter beyond retrieval, crashing to the floor and shattering all hopes of a successful life post-merger.
Prevent share price drop on merger announcement
There is a well observed tendency for the share price of the acquiring business to drop on deal announcement, especially if the acquirer has paid a premium and fails to convince the market of their ability to more than recover this through integration and improvements post-close. It isn’t always easy to avoid and sometimes the markets will do what they do despite your very best intentions and actions.
But you don’t have to be complicit in this by making unhelpful decisions. One of the first public facing things that happen around a deal is the announcement it is taking place. Great care should be exercised with this. A word out of place could cost a huge percentage share price fall.
For example, announcing the $19bn acquisition of WhatsApp in February 2014, Facebook’s Mark Zuckerberg said “WhatsApp is on a path to connect one billion people. The services that reach that milestone are all incredibly valuable. I’ve known Jan [Koum, founder and CEO] for a long time and I’m excited to partner with him and his team to make the world more open and connected.” On releasing this announcement, Facebook’s share price immediately dropped 3.4%, instantly wiping close to $6 billion off their value.
It is entirely likely that the market wasn’t convinced that a personal endorsement from Zuckerberg was enough to justify the deal. The markets wanted something more concreate in the announcement – such as a conviction that the deal was going to really benefit Facebook – and how that benefit would be made visible. The market wanted something to justify investment – and a personal character endorsement isn’t enough.
Here’s an example of an announcement that bolstered share price.
Announcing the acquisition of Dresden Papier in March 2013, the CEO of Glatfelter, a mid-cap manufacturing firm with revenues at the time of $1.7 billion, stated, “The acquisition of Dresden Papier will add another industry-leading nonwovens product line to our Composite Fibers business, and broaden our relationship with leading producers of consumer and industrial products. Despite the ongoing economic challenges in parts of Europe, we believe the global nonwoven wallpaper business will continue to grow at a compound annual growth rate of at least 10%. This acquisition will also provide additional operational leverage and growth opportunities for Glatfelter globally, particularly in large markets such as Russia and China, and other developing markets in eastern Europe and Asia.”
Share price immediately increased by a staggering 28% – and went on to rise by a further 29% in the coming months as integration progressed.
Communicate often, and communicate well: trust the specialists
Getting the initial announcement right is the first example of what needs to continue in order to maintain – or better, increase – share price as the merger process is worked through. The golden phrase here is ‘communicate often, and communicate well: trust the specialists’.
Both shareholders and markets want to know that things are going well – and they are not clairvoyant. You need to tell them, regularly. It is remarkably easy to lose track of this imperative when you are deep in the mechanics of the M&A process. But you really can’t let yourself lose sight of it.
Getting the message across requires skill and dexterity. Many people think they have a novel in them, and there are plenty of poorly written, self-published novels out there that disprove this belief. Similarly, lots of people think they know how to communicate well around M&A, believing they have the specialist skills needed to deliver nuanced messages to markets, shareholders, investors and the general media.
But even within the field of communications specialists, there are sub-specialisms, and working with key stakeholder groups around M&A is one of these. Unless your organisation is involved in serial M&A and retains staff specifically for that purpose, it is unlikely the specialist skillset required will be in house. So look externally for it, buy it in, and use it well. It will pay you back.
Respect the market
The market, shareholders and investors, will make or break your share price. They can be a fickle bunch, and won’t always react to the information you feed them with as you might expect. But just as it is a fallacy to stop communicating with them, it is also unwise to hide what you might think is negative news from them because you think it will harm share price.
If a certain aspect of the M&A is going less well than you thought it would, think about how you will communicate that. Perhaps technology integration is more complex than you’d thought, and you have to go back to the drawing board. There will be sound reasons for that, and you can find a way to share these, and explain how a little unexpected pain now will reap rewards later on. The worst thing is to try to hide news like this. Stakeholders will find out, and if news comes out unofficially, there may be all kinds of damaging speculation around it.
The very last thing you want to do if you are concerned about share price is firefight bad news. You need to be on the front foot all the time, and taking the initiative in explaining delays or changes of direction can keep you on the front foot.
A key part of taking the right course of action when reporting delays is maintaining credibility. Even if a particular announcement results in a fall in share price, when the announcement itself is handled well, by skilled communicators, you can retain, and even increase, the degree of respect stakeholders have in the M&A, buoying up your credibility in the face of adversity. The longer term benefit of building trust with stakeholders can’t be underestimated.
Prepare for the bad times
The M&A that goes smooth as silk from start to finish is a rare thing indeed. There are always going to be glitches of some kind or another. It can be extremely helpful to build in to the risk management process regular reviews specifically designed to highlight potential issues in the coming period with a special focus on how you will communicate these. Preparing strategies or statements you may never use is not wasted time. If nothing else, it might help you think better on your feet if you have to, and at best it will mean you are better prepared and more confident when you need to be.
One of the things that can damage share price is the departure of key personnel. People who were perhaps architects of the M&A, or who were seen as being vital to the success of the new business that will come out at the other end of the process. If such people leave the organisation, a good deal of mitigation may be needed to prevent a fall in share price. How will you handle the departure of your CEO, CFO, CTO, or other board level personnel? Preparation could stand your share price in good stead.
There are other areas where some forward planningmight help. Where two organisations are combining plant, manufacturing facilities or overlapping staff roles, there may inevitably be some staff losses. This might mean one city or geography suffering more than others. How will you handle that both early on in the process and when the reality starts to bite?
Create, maintain and build stakeholder confidence
In the end all of this advice boils down to creating, maintaining and building stakeholder confidence through strong, regular and honest communication.
There will always be things in the markets that are beyond your control, and that can drag share price down. But there will be many things you can control, through careful planning, building a strong and capable team of communicators, listening to advice from M&A specialists, and always understanding that you need to take the markets, shareholders and other stakeholders with you on the M&A journey.
Nissan flips the switch on electric reboot in China
By Norihiko Shirouzu
BEIJING (Reuters) – Nissan Motor is accelerating the rollout of electric vehicles in China under its main brand and its local, no-frills Venucia marque as it overhauls its strategy in the world’s biggest auto market, four sources told Reuters.
Besides the focus on green vehicles, the plan involves using more locally made parts and technologies to reduce costs and help the struggling Japanese carmaker compete better with lower-cost Chinese firms and major global rivals, the sources said.
The China strategy is a key pillar of Nissan’s turnaround, which involves focusing on producing profitable cars for China, Japan and the United States, rather than chasing all-out global growth as it did under disgraced former boss Carlos Ghosn.
“Before we were saying global, global, global, and China was just part of that strategy,” one of the four people familiar with the plans told Reuters.
“With regionalisation now replacing globalisation, we have to improve the cost competitiveness of all the components and technologies that go into a car by going totally local,” he said.
Both the Nissan board and the board of its China joint venture Dongfeng Motor Company have backed the plan and some elements of the new strategy will be unveiled at the Shanghai auto show in April, the sources said.
Nissan plans to launch three cars in China this year: the new all-electric Ariya crossover, a significant redesign of its X-Trail sport utility vehicle (SUV) and a hybrid Sylphy compact car using its e-Power technology, the sources said.
At least one new Nissan car will hit the Chinese market each year through 2025, with most either fully electric or hybrids equipped with autonomous and smart driving technology, the sources said. One is likely to be an e-Power X-Trail.
Two of the sources said the plan also involves turning Venucia more into a brand for affordable electric vehicles (EVs), though details are still being worked out. The idea is to price new Venucia EVs well below its current cheapest EV – the e30 mini car – which starts at 61,800 yuan ($9,540).
All four sources work for Nissan and spoke on condition of anonymity because they are not authorised to speak to reporters.
Nissan declined to comment on its future product strategy.
“China is a core market for Nissan and Nissan is getting prepared to launch a slew of technologies including e-Power technology to fulfil customers’ aspirations,” a Nissan spokesman said. He also confirmed the Ariya would be launched in 2021.
Despite being one of the world’s first automakers to fully embrace fully electric cars with its best-selling Leaf, Nissan has fallen behind Toyota and Honda, analysts said. Both launched a slew of new hybrids in China in 2019 and 2020 which has helped boost their sales.
“Nissan has nothing to show off in terms of green cars in China today,” said Yale Zhang, head of consultancy Automotive Foresight in Shanghai. “That’s hurting their image and, most importantly, sales.”
Nissan’s new China strategy is also a response to growing competition from price-competitive Chinese automakers such as Geely Automobile, GAC Motor, and BYD, two of the sources said.
One of the sources said a new focus on “China-specific” cars designed to appeal to local tastes underpinned Nissan’s more decisive turn towards electrified models. That should mean bolder grilles, sharp-looking headlamps and tail lights as well as richer, softer and more sumptuous vehicle interiors.
Many local brands are now producing better-quality cars and that’s putting pressure on Nissan’s mainstream cars, as well as vehicles produced by other global automakers.
The most critical part of Nissan’s China-specific strategy, however, is to make cars with more parts and technologies procured within the country to slash costs.
After posting its first loss in 11 years, Nissan is scrambling to slash its production capacity and models by about a fifth and to cut fixed costs by 300 billion yen ($2.9 billion) over three years.
Nissan expects to post a record operating loss of 340 billion yen in the year ending March 31.
Two of the sources said there wasn’t necessarily a cost-cutting target for the China initiative.
However, Nissan is worried about the potential hit to profitability from increasingly stringent emissions and fuel-economy rules, as well as a likely rise in the cost of materials such as steel, other metals and semiconductors, they said.
Under the new China plan, parts engineered and procured locally should go well beyond bumpers, seats and lamps to include more complex technologies such as sensors and electric power inverters, three of the sources said.
Batteries for Nissan’s e-Power models, for example, will be locally developed and sourced from China’s Sunwoda Electric Vehicle Battery Co.
Nissan’s new plan is modest in terms of volume growth. It is simply aiming to outpace the overall Chinese market for cars and light commercial vehicles, which Nissan expects to grow by about 10% to 25 million vehicles by 2025, one source said.
Nissan’s previous “Triple One” China plan aimed to boost annual sales to 2.6 million cars by 2022 but the COVID-19 pandemic derailed it. Nissan sold 1.46 million cars last year, down from 1.56 million in 2018 when that plan was unveiled.
While Nissan’s performance in China last year was broadly in line with an overall 6% decline in passenger car sales due to the coronavirus, its Venucia brand fared particularly badly.
Established in 2012 to compete with local brands making cheap, gasoline-fueled cars, Venucia’s sales peaked in 2017 at 143,206 before sliding to 79,000 last year. The plan is to relaunch Venucia more as a brand for affordable EVs though it won’t be going fully electric for now, two sources said.
Carmakers in China need to make enough so-called New Energy Vehicles to win green-car credits which then offset negative points from their production of combustion engine vehicles.
Nissan looks set to fall short of credits so it would either have to buy them from rivals, or step up its EV production. As buying credits would eat into profitability, it is favouring the second strategy, one of the sources said.
Cheaper EVs made locally by global rivals such as General Motors through joint ventures have also proved to be a success story with customers, especially in big cities.
Launched in July, GM’s tiny Wuling MINI EV has already become China’s best selling electric vehicle, knocking Tesla’s Model 3 sedan off its perch.
“We don’t have enough electric cars in China. The new plan for Venucia is all about changing that more decisively,” said one of the sources familiar with Nissan’s plans.
($1 = 6.4767 Chinese yuan renminbi)
($1 = 103.8300 yen)
(Additional reporting by Tim Kelly in Tokyo; Editing by David Clarke)
Top global traders work to ease seafarer crisis due to coronavirus
By Jonathan Saul
LONDON (Reuters) – Over 300 leading companies said on Tuesday they would work together to help hundreds of thousands of merchant sailors stuck on ships for many months due to COVID-19 in a crisis that risks creating more dangers at sea.
About 90% of world trade is transported by sea, and coronavirus restrictions in many jurisdictions are affecting supply chains.
In December the U.N. General Assembly urged all countries to designate seafarers and other maritime personnel as key workers. Nevertheless, ship crews are still struggling to swap over with colleagues on land.
Shipping industry officials say many sailors are at breaking point and many have been at sea for longer than an 11-month limit laid out in a maritime labour convention.
The companies, which include shipping groups such as A.P. Moller Maersk, miners Anglo American and Rio Tinto, oil majors BP and Royal Dutch Shell as well as trading companies Cargill, Trafigura and Vitol, will boost information sharing as signatories of the “Neptune Declaration” initiative.
“All of us have a duty of care to seafarers,” said Kit Kernon, global head of shipping at Vitol.
“Their wellbeing is essential to safe and efficient operations.”
Signatories will also increase collaboration between shipping operators and charterers to speed up crew changes while also calling for key worker status for mariners.
“We are witnessing a humanitarian crisis at sea,” said Jeremy Nixon, chief executive of shipping group ONE.
“They have become hostage of the situation and unable to disembark from their ships.”
Sven Boss-Walker, senior vice president of shipping at BP, said the “remote nature of their roles meant their contributions are often out of sight and out of mind”.
“It is critical that the industry comes together to provide a collaborative response,” Ashley Howard at Rio Tinto added.
(Editing by David Evans)
Investor payouts and job cuts jar with U.S. companies’ social pledge
By Jessica DiNapoli, Ross Kerber and Noel Randewich
(Reuters) – When Randall Stephenson joined 180 of his peers leading many of the richest U.S. companies in signing the Business Roundtable pledge on the “purpose of a corporation” in August 2019, the then-chief of AT&T Inc promised to look out for the interests of all the wireless carrier’s stakeholders, not just shareholders.
Two months later, the Dallas-based company outlined a plan for cost reductions that also prioritized dividends and stock buybacks for shareholders, succumbing to pressure from $41 billion hedge fund Elliott Investment Management LP.
Activist investor Elliott had said its proposals would deliver “substantial benefits” for shareholders, consumers and employees, but not everybody came out ahead.
By the end of September 2020, AT&T had eliminated 23,000 positions, or about 9% of its workforce, many of them during the pandemic. Already one of the corporate world’s top dividend payers with $14.9 billion spent in 2019, AT&T had raised its common dividend by 2% and bought back $7.5 billion of its stock.
“We are the face of AT&T and we go out of our way to help customers communicate with their families,” said Darren Miller, a 35-year-old technician whose job was cut last July. “But we are a dime a dozen to them. If they can get someone cheaper to do the job, they will do it.”
Miller, who worked in Reseda, California, said he accepted a buyout offer after managers told him he might be laid off later on less generous terms, something he said his local union representatives told him happened to dozens of other employees in the state.
AT&T spokesman Jim Kimberly said most of the workforce reductions “were from voluntary departure offers and attrition” and declined to comment on individual cases. He added the company had for years practiced a “meaningful commitment to all stakeholders” through programs that include worker retraining and environmental and social justice efforts. AT&T also ended share buybacks once the pandemic hit, and has not increased its dividend since, Kimberly said.
Elliott declined to comment.
Some advocates of a socially-minded stakeholder capitalism say AT&T’s case is representative of the hurdles they face in challenging the leverage investors have over U.S. companies.
The voluntary governance pledge signed by the CEOs didn’t spell out specific actions, but had the stated aim of moving away from “shareholder primacy”. https://s3.amazonaws.com/brt.org/BRT-StatementonthePurposeofaCorporationOctober2020.pdf
Yet while signatories subsequently reduced payouts to shareholders as companies put away cash to shield themselves from the financial fallout of the COVID-19 pandemic, they still give a greater share to investors than those companies that did not sign the pledge, according to a Reuters analysis of data compiled by financial information provider Refinitiv.
The analysis found that the 171 publicly traded companies that signed the pledge returned a median 60% of net income to shareholders during the first three quarters of 2020 through dividends and buybacks, versus a 50% return among the 355 S&P 500 firms that did not sign the statement.
By comparison, in the first three quarters of 2019, the signatories returned a median 73% of net income to shareholders versus a 68% return among the firms that did not sign the pledge, the analysis found.
Tim Gaumer, Refinitiv’s director of fundamental research, said pledge signatories returned more to investors because they had the ability to do so. “It is easier to pay out dividends and buybacks with confidence if your income stream is less volatile,” he added.
Business Roundtable spokeswoman Jessica Boulanger said the analysis didn’t account for how companies spent money they did not return to shareholders, nor for “industry differences, company size and longevity and trends in shareholder returns over time.” She added that signatories had upheld their commitment to work for all stakeholders.
The CEOs signed the pledge without legally binding their companies and largely without approval from their boards. COVID-19 stress-tested their commitments, as large swathes of the economy were forced to shut down.
The pledge’s lack of detail gave signatories wide discretion in deciding how the pandemic pain would be spread among shareholders, employees and other stakeholders.
“It’s a political signaling exercise that doesn’t mean very much,” said Harvard Law School professor Jesse Fried, who is on the research advisory council of Glass, Lewis & Co which advises investors over how to vote on corporate governance.
Defenders of the Business Roundtable pledge say many contributions to society cannot be measured as easily as shareholder spending or layoffs. For example, JP Morgan Chase & Co pledged $30 billion to address racial injustices, and Apple Inc launched a $100 million diversity drive.
Indeed, some signatories have won praise from progressive-leaning organizations for standing by employees during the pandemic.
Among them, Target Corp raised its minimum wage to $15 an hour in July from $13, which was already well above the $7.25 national level.
Some executives and investors argue that unless companies are attractive to shareholders and keep their stock highly valued, they won’t have the money to invest in their businesses for the benefit of all stakeholders.
“If you don’t have access to capital, then you’re not going to be around long enough to face tough societal issues like climate change,” said Todd Ahlsten, chief investment officer for Parnassus Investments, a San Francisco-based firm with $40 billion under management.
Less than two years after the signing of the pledge, key protagonists at AT&T moved on. Stephenson passed the reins to a successor, and Elliott sold what was once a $3.2 billion stake in the company.
AT&T’s layoffs during the pandemic attracted the attention of Democratic senators Elizabeth Warren and Bernie Sanders, who wrote to the company last July objecting to “corporations using the pandemic as justification for continuing to make anti-worker decisions that are aimed at boosting share price.”
“The long-term interests of our communities and employees cannot be met without attracting investor capital,” AT&T executive vice president Timothy McKone responded in a letter.
BlackRock Inc and Vanguard Group Inc, whose CEOs also signed up to the pledge, were among the AT&T investors who voted down a proposal last April to have an employee representative on the company’s board – a step its advocates argued would give stakeholders a voice. Both fund managers declined to comment.
SPENDING ON SHAREHOLDERS
Wharton School of the University of Pennsylvania researchers found that among signatories, the bigger share of profits companies subsequently returned to investors, the more likely they were to announce layoffs and furloughs.
A study from the London School of Economics and Columbia University found signatories violated environmental and labor-related rules and paid their CEOs more than similarly-sized peers.
Like AT&T, some companies that signed up continued payouts to shareholders even as they cut jobs during the pandemic.
Cisco Systems Inc bought back $800 million of its shares during the three months ended Oct. 24, 2020. The network equipment maker had announced a restructuring plan in August to cut $1 billion in costs annually, with the loss of about 3,500 jobs.
“Cisco believes in the Business Roundtable pledge balancing the needs of all of our stakeholders and fulfilling our own company’s purpose of powering a more inclusive future for all,” the company said in a statement.
Walgreens Boots Alliance Inc repurchased $522 million of its shares from April through July. That month, the pharmacy operator cut 4,000 jobs, some 7% of its headcount, bumped up its dividend and nixed its stock buyback program.
Walgreens did not respond to a request for comment.
The chairman of the Business Roundtable, Walmart Inc CEO Doug McMillon, downplayed the significance of the pledge in remarks to investors last February. He said “it didn’t feel like news” because companies sought to balance the interests of all stakeholders anyway, and that “of course, our shareholders are our priority.”
Walmart declined to make McMillon available for an interview. A company spokeswoman pointed to McMillon’s previous comments on multi-stakeholder capitalism being “the answer to addressing our challenges holistically.”
(Reporting by Jessica DiNapoli in New York, Ross Kerber in Boston and Noel Randewich in San Francisco; Editing by Greg Roumeliotis and Pravin Char)
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