The former ITT Corporation avoided many of the missteps of other major public firms when it spun off two companies, ITT Exelis and Xylem, this week.
Investor relations professionals say ITT's spinoff process could serve as a model in terms of how to communicate such a complex corporate move.
“They have made a very good case in terms of why they spun off those two businesses,” says Gene Marbach, group VP at Makovsky & Company. “They've done everything right.”
Angela Buonocore, SVP and CCO of Xylem and previously the SVP and CCO of ITT Corporation, says the company's in-house team was careful to ensure all facets of its communications, including sales, IR, and employee outreach, were on the same page during the spin-off process.
“We had to be very consistent in our messaging, in terms of the strengths the transformation would unlock,” she explains. “From the very start, we worked hard to create the key messaging and to think about how to communicate that messaging on an audience-by-audience basis.”
ITT's media relations goal was to “maintain a steady level of positive press coverage from the announcement [in January] all the way to the actual completed spinoff [in November],” adds Jenny Schiavone, CCO of the remaining ITT company and previously its PR director.
“We were very active in pitching the story, responding to media outlets, and engaging the CEO in a number of interviews,” she notes. In the months after the announcement, for instance, the CEO spoke with columnists about the decision-making process behind the spinoff.
“We wanted to make sure we reiterated the story so that it was well understood,” Schiavone explains.
ITT spun off two companies – defense technology and information solutions firm ITT Exelis and Xylem, a water technology company. The remaining ITT Corporation is now focused solely on manufacturing highly engineered components and technology platforms.
Spinning off separate businesses is a high-risk action for any company. For instance, HP was criticized when it said in August that it would spin off its PC business, but later recanted that decision once Meg Whitman took over as CEO of the company.
ITT did encounter some problems during the spinoff process. A manufacturer of bath and plumbing products claimed to own the trademark on the Xylem name since 2005. Xylem is also using XylemInc.com instead of Xylem.com, and ITT Exelis' Web destination is ExelisInc.com.
Companies can also lose as much as 40% of institutional investors who go elsewhere to rebalance their portfolios, says Marbach, adding that there is also risk that new companies will fail to attract new investors.
“Companies have to identify the institutional audience for their new businesses because both the spinoffs and the remaining business will have different characteristics than when they were part of a single entity,” he adds. “Everyone has a new story to tell, and in some cases, a new investor community to tell it to.”
As ITT moved closer to splitting into three distinct companies, Buonocore says each communications team knew what its counterparts were doing.
“A part of what kept me awake at night was thinking about making sure everything synchronized,” she recalls. “You wouldn't want one of the spinoff companies to announce a new name, and the next a month later. So we made sure everyone knew what the other was doing.”
The spinoff involved all 75 members of ITT's PR staff, as well as its AOR Edelman, which has retained that relationship with all three companies. The firms' IR teams are also conducting road shows about the corporate changes, notes Buonocore.
However, Terry Hemeyer, executive counsel at Pierpont Communications and professor of crisis management at Rice University, explains that companies should communicate with important stakeholder groups even after a spinoff.
“Shareholders demand results,” he asserts, “so companies who make this kind of move will be under pressure to get them.”