MANAGING MERGERS: As mergers and acquisitions become a way of American life, John Frank looks at two tales which show, in their very different ways, that managing messages can make or break a deal

Corporate mergers have become a way of life for American business.

Corporate mergers have become a way of life for American business.

Corporate mergers have become a way of life for American business.

Companies in old-line industries are coming together to gain market share and reduce costs. Those in emerging businesses want to gain recognition and market clout. Some just do it to become leader in their fields, realizing that only the largest will survive in a competitive global marketplace.

Whatever the reasons, major mergers necessitate massive corporate communications efforts. 'Communications can make a deal successful or not,' says Edward Nebb, principal of the financial practice at BSMG in New York.

Top-notch merger communications planning can spell the difference between a deal that is embraced by investors, employees, and regulators, or one that falls flat on its face, failing to please any of its key audiences.

Invariably in the latter case, the company pays the price in depressed earnings and a falling stock price.

Merger veterans point to two deals that demonstrate these extremes.

When Viacom decided to buy CBS in 1999, it did its communications work well, quickly making the business case for the deal with analysts, investors, customers, regulators and other key publics. The result - Viacom stock rose dramatically after the merger and continued doing so until this year's stock market retreat.

The Daimler-Benz takeover of Chrysler in 1998, however, represents the other extreme of merger communications - an instance in which the company delivered messages to employees and investors but failed to back them up with action. Employees and investors felt betrayed and showed their disdain by leaving the company and dumping its stock. Although the company put a lot of effort into communicating with its stakeholders, the messages it was sending out weren't realistic.

It doesn't take long for employees to see through puff. The result has been an ongoing exodus of key employees, the latest being Chrysler division president James Holden. His loss is a particular blow as he was touted as the person who could restore morale among battered Chrysler workers when he took the top position at the division 12 months ago. Investors have also shown their scorn for the deal by pushing company share prices down by more than 50% from its early 1999 high.

In the past few years all the big competitors have embraced the need for effective communications, as its link to reputation and eventually stock price and profits has become ever more proven. At merger-time, when a company is especially vulnerable to the judgement of stakeholders, the discipline is crucial.

At General Electric, which handles 100 or so acquisitions a year and is currently in the midst of taking over Honeywell, 'communications is part of the (merger) process. It is recognized right up front and is on the (merger) checklist,' says Beth Comstock, VP corporate communications.

Audiences for the typical merger include employees, both active and retired, investors, journalists, suppliers, customers and regulators. Messages must be developed for each group that are consistent, yet address individual concerns. 'Before you can put a single word on paper, you have to understand what each audience can get out of the transaction,' Nebb advises.

CEOs and other senior executives must be prepared to hit the airwaves with their key message points when a merger is announced and Wall Street needs to be told quickly why a deal makes business sense.

'The best management recognizes that careful communications needs to be part of the planning right away,' says Jeffrey B. Linton, managing director with Dix & Eaton in Cleveland. 'The best situation is one where communications is accounted for early in the process.'

In heavily regulated industries, regulators need to be addressed early on and companies need to be flexible in answering regulatory concerns.

Local government officials concerned about the economic impact a deal will have on their areas also need to be reached. Supplier and customer concerns about future business relationships with the merged entity must also be addressed.

When Linton was working for American Greetings in its takeover of Gibson, for example, he arranged weekend meetings with Gibson customers to answer their questions and discuss future business relationships.



Reassure the workforce

Internally, the key concern of workers - job security - must be addressed as directly and as soon as possible. The first question an employee of a merging company will ask is: 'am I going to have a job?' says Ellis.

Retired workers will want to know about continued health or retirement benefits.

GE has been telling Honeywell employees that in any areas of overlap where it plans to reduce staff, the company will keep the best workers, regardless of whether they come from Honeywell or GE. 'We really strive to be very candid,' Comstock says.

And while most communications work will focus on the day a planned merger is announced - Day 1 in PR parlance - communications plans need to be made for the weeks, months and even years after a merger has taken place.

Steve Frankel, managing director and head of the global transaction group at Burson-Marsteller, New York, advises clients to conduct perception audits after a merger, calling on key investors and others to see if the public image of the merger is living up to expectations. GE's Comstock says merger communications continue from three months to a year after a deal is announced and closed. 'The day we announce is just the beginning,' she says.

Wall Street, employees and other constituencies will want to know if a merger delivered on its promised benefits. That means continually using PR to reinforce why a merger made sense and how it's improving the lot of all key audiences of the new entity.

When Viacom unveiled its planned merger with CBS on September 7, 1999, its combined PR teams had spent the Labor Day Weekend preparing for the big announcement, says Carl Folta, Viacom's SVP corporate relations. An eight-person team was formed that included Viacom and CBS PR people. Abernathy MacGregor Group, a New York IR shop and a firm Viacom and CBS each had worked with in the past, was hired to assist.

Folta, who has been involved in a rash of mergers at Viacom including its current deal to acquire BET Holdings, says having merger experience helped the communications team hit the ground running. Its major goal - ensuring that 'everybody gets the same message at the same time.'

A major message was formulated - the deal was being done to enhance growth and would create a new company with more opportunities to capture advertising across all its media outlets than either company would have been able to get alone. 'This was a growth deal,' says Adam Miller, COO with Abernathy MacGregor.

That basic message 'worked for everybody,' says Folta.

The communications team created a checklist of what it had to do and got down to the nitty-gritty of writing speeches, press releases, making sure it had logos for each company's many units on hand for media and arranging where the announcement press conference would be held. Miller booked a room at New York's St. Regis Hotel without divulging what the space would be used for, so word of the deal wouldn't leak out. Key executives at both firms were rehearsed in delivering their messages.

Both Viacom CEO Sumner Redstone and CBS chairman Mel Karmazin were used to the spotlight, which made preparing them easier. 'You can't underestimate the value of having two great communicators,' says Folta.

The deal was announced on September 7 with an analysts' call followed by a press conference. Employees at both companies were sent e-mails announcing the deal and senior executives were briefed so they could meet with their employees throughout both organizations.

Once the press conference ended, Redstone and Karmazin took to the phones, calling suppliers, others in the industry and Washington contacts to discuss the deal. The communications plan called for addressing Wall Street, employees and the press on Day 1, then shifting to regulators and Congressional contacts on the second day. Redstone and Karmazin made those second-day Washington calls along with the companies' public affairs staffs. 'You need to take that extra step to ensure Washington understands your point of view,' counsels Folta.

Viacom resolved that it wouldn't argue with regulators if they asked for changes or divestitures as part of the CBS deal. 'We would do whatever it took to complete the transaction' was the message Redstone and Karmazin took to Washington on September 8, Folta says.

Analysts give Viacom high marks for its communications efforts during the CBS deal. 'They laid out a lot of detailed plans as far as synergies,' says Derek Baine, senior analyst with Paul Kagan Associates. With the deal being done as a stock swap, Viacom's challenge on Wall Street, says Baine, was to convince CBS shareholders who might have been hoping for a higher price that the Viacom shares they'd receive would quickly appreciate.

'I think they've been successful in that,' he adds.

Indeed, Viacom shares rose after the merger from around dollars 60 a share to a high of dollars 75 this summer before retreating with the market and on concerns about a more recent Viacom deal, says James Goss, an analyst with Barrington Research, Chicago.

'Most people thought it (the Viacom-CBS deal) had very clear benefits,' says Goss, adding that Viacom goes out of its way to be open. Another plus point, says Baine, is that top-level Viacom management is comfortable mingling with analysts at company-sponsored meetings and at investment seminars.

Viacom did lose two senior managers in the deal after Karmazin was brought over from CBS to be the No. Two man behind Redstone. Folta acknowledges the management losses, but believes the company got high marks for bringing in Karmazin, known as a strong manager and business builder in his own right.

Viacom's merger communications didn't end after the deal was complete.

Rather, Folta kept announcing developments, such as the completion of departmental or business unit consolidations, and quarterly earnings that showed the merger was achieving its goals. Folta calls this the 'show me' stage of his communications plan, an element that proved the accuracy of previous messages.



Show me

It was this crucial final step that scuppered the communications efforts of Daimler-Benz's acquisition of Chrysler in 1998.

Initially, the deal seemed to make sense for both companies. Chrysler, the perennial number 3 among US. automakers, needed a deep-pocketed parent to help fund new model development. Daimler needed to broaden its product line and its reach in the rapidly consolidating world auto industry. But communications mistakes started on the day the deal was announced in May 1998.

CEOs for the two companies called the deal a 'merger of equals' - a phrase that would come back to haunt them in the media and with the former Chrysler's workforce. The message may have been an attractive one, but it didn't stand up to scrutiny.

As the merger was being formulated, the top communications people from each organization were involved, remembers Tony Cervone, now VP communications with the Chrysler group of DaimlerChrysler, but at the time manager of car, manufacturing, procurement & supply PR at Chrysler. A communications plan was created, but Cervone admits: 'It was put together as most communications plans to announce these things were put together; fairly late in the game.'

As the deal moved forward, pre-merger teams were formed at Chrysler and Daimler. Cervone was part of the Chrysler team. Employees were addressed through e-mails and in town hall meetings hosted by senior executives.

Employee communications 'was immediately made a priority,' Cervone says.

Key messages for employees and the investment world were that the two companies complemented each other in terms of their product lines with little model overlap. Employees were concerned about their jobs. They kept asking 'where were the synergies and were the synergies going to be taken from people's hides?' Cervone recalls, 'We said no.'

Chrysler workers at first took the 'merger of equals' phrase at face value. Senior executives from both companies held a widely reported meeting in Spain in December 1998 to start the bonding process. Many Chrysler execs thought the new company could benefit from the years of experience they had running Chrysler with limited financial resources. The early thinking was they would teach the Germans about cost-savings and efficient production and the Germans would teach them about selling to upscale markets.



Fears of German domination

But as the merger was completed and reorganization began, Chrysler employees started increasingly seeing that that was not how their German partners saw the deal. The new DaimlerChrysler seemed to go out of its way in announcing staff reorganizations that included German and American managers. The PR staff was reorganized in early 1999, for example, with German and American heads of various operations.

Yet the impression always left was that the Germans had the top post, and the media were already reporting stories of American ideas being shunted aside as German managers began imposing the Daimler way of doing business.

Key Chrysler executives started leaving. Robert Eaton, who was supposed to be a co-chairman of the new company, announced his retirement and then Thomas Stallkamp, president of US operations who had headed up merger integration efforts, left as well.

In communications, Steve Harris, head of Chrysler PR, defected to rival General Motors at the start of 1999 and began taking other PR people, including Cervone, with him. 'There was a lot of employee concern over the people who were leaving,' Cervone recalls. 'It's hard to convince people when people leave it's not because of the merger,' he says. 'It was a very emotional time.'

Wall Street skepticism increased. American ownership of shares dropped and Wall Street concerns about a sagging share price added to doubts about the merger's benefits.

After Harris left, Steve Rossi was brought in from Mercedes-Benz USA to head up PR in the States. Although an American, Rossi was still seen as an outsider in the close-knit former Chrysler headquarters. When Daimler finally said it would turn Chrysler into an operating unit, Rossi saw his functional area shrink. He left the company this September

While the employee turmoil continued at DaimlerChrysler, the company was also failing to demonstrate to Wall Street that the deal made financial sense. In June, Ralf Brammer, head of IR, left - his departure a tacit admission of the company's poor stock performance (shares had fallen from a high of dollars 108 on January 16, 1999 to dollars 46 last week). In its most recent quarter, the company reported weaker than expected third quarter earnings as the Chrysler unit posted a dollars 512 million loss, its first since 1991.

The final straw for many employees was when DaimlerChrysler Chairman Jurgen Schrempp admitted to the Financial Times this fall that he had only used the 'merger of equals' phrase as a bargaining ploy to get the deal done. His words were passed around by Chrysler staff.

'I think he has fundamentally damaged the entire company's credibility,' says Paul Eisenstein, a long-time Detroit auto writer who heads up The Detroit Bureau. 'He's essentially told employees 'never trust what I say.' Among the media, it just confirmed what we all came to cynically realize.'

Cervone is aware of the criticisms of how DaimlerChrysler handled its merger communications, and the merger itself. 'You can always improve and hindsight is 20/20,' he says. But he defends the company and the deal, saying 'the tendency of people to immediately discount it as a disaster would be overstating it from a negative standpoint.'

Cervone is now concentrating on rebuilding brand identity for Chrysler products and re-establishing some of the esprit de corps he knew at the old Chrysler. He outlines his goals as 'defining what the Chrysler group is and really rekindling some of the branding elements that made Chrysler special.'

Observers have a great deal of respect for Cervone's abilities. Still, they're reserving judgment on his chances for success. 'It depends on what kind of free hand he has to mold the reputation,' says David Cole, director of the Office for the Study of Automotive Transport at the University of Michigan.

'I think he knows what he has to do.' Agrees Eisenstein: 'even though there are some awfully good people there on PR, they have a fundamental crisis' - namely re-establishing a corporate credibility that has been severely damaged by the poor communications that surrounded the DaimlerChrysler merger.

The lesson to be learnt from the experiences of Viacom and DaimlerChrysler is clear. In a merger, regular communications is not only vital to keep the process moving smoothly, it also needs to be seen to be sincere. Because using your PR staff to pull the wool over the eyes of staff, investors, and customers is ultimately a fruitless task.



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