Building a Business > Public relations

Published online: 21 July 2003, doi:10.1038/bioent756

Communicating your way through a merger—tales from the front line

*Fiona Brown and Sue Charles are at Northbank Communications, which specializes in communications counsel, campaign implementation and marketing design specifically for science-based companies (f.brown@northbankcommunications.com).

Winning the hearts and minds of stakeholders is key to a successful transaction.

Mergers and takeovers are once again appearing on the biotechnology landscape, providing unexpected splashes of color, like random poppies in a French cornfield. At the end of 2002, according to the BioIndustry Association (London, UK), there were some 49 biotechnology companies in Europe with three years' worth, or less, of cash left. The United Kingdom managed only three biotechnology flotations last year and two so far this, all on the junior Alternative Investment Market (AIM; London, UK).

How then does a private biotechnology company attract funds and stay in business in a market where flotations are a forgotten dream and venture capitalists are loathe to put their money into early-stage companies where the exit route is not yet in view? A veritable carpet of poppies could well be on the horizon. And it could be your merger next.

Merger and acquisition pundits say there is no such thing as a friendly merger; the process is really a takeover in disguise. In the public company arena, a successful offer to merge or acquire depends on winning the hearts and minds of shareholders. Win the communications battle and you win the war. For the private company, there are stakeholders, if not many shareholders, whose hidden agendas must still be addressed (see Box 1). Perhaps we can learn some communications tactics from recent mergers in the sector.

Right price

Shareholders have to believe that an enlarged group will enhance value. "What matters to shareholders is whether the company is being taken over at the right price," says Stephen Foley, the Independent (London, UK) newspaper's city writer on biotechnology.

'Right price' became the issue in the recent tussle for Oxford GlycoSciences (OGS; Abingdon, UK). On Friday, January 24, the headlines ran: 'Biotech firm seals merger at 109 million' ($181 million). The offer from Cambridge Antibody Technology (CAT; Cambridge, UK) valued OGS' shares at 195.5 p ($3.24), a 28.2% premium to the then-stock-market price. Together the two companies would have had 260 ($432) million to go on their own buying spree. However CAT's was an all-paper offer and while OGS' share price rose in the ensuing weeks, CAT's fell, reducing the value of the original offer.

Although the two boards had agreed, OGS shareholders still had to vote to accept the terms. CAT's communications were casebook stuff. "CAT always takes a great deal of care with its communications with the outside world and preparation was very thorough before the proposed merger went public," says Rowena Gardner, CAT's director of corporate communications.

Best laid plans...

This consistent approach to communicating probably won the 'terrific response' that greeted the merger announcement. It went out first through the Regulatory News Service of the London Stock Exchange (London, UK) and later in the morning via an analysts' briefing and, as CAT is also listed on NASDAQ (New York, NY, USA), simultaneously webcast for discussion with the financial community around the world. "The arguments for achieving a stronger and broader portfolio and greater financial strength were well substantiated," says Gardner.

However, we all know what can happen to the best laid plans.... Enter top UK biotechnology company Celltech (Berkshire, UK) with a cash offer of 101 ($167) million, which trumped the sliding value of CAT's offer. Celltech's hostile bid changed the scene and the debate was then led by Celltech's then CEO, Peter Fellner, using John Coles, a UK financial pro, as a 'spokesperson'.

OGS rallied its shareholders to reject Celltech initially, but by June 4 Celltech had bought 90.3% of OGS' shares, enabling it under UK law to compulsorily purchase the remainder.

It would have been a virtual impossibility to convince OGS shareholders to take paper over cash, but observers reckoned a case could have been made for long-term value over short-term liquidity. 'OGS has no viable future as a stand-alone company,' one analyst was quoted as saying.

Public and private mergers

Around the same time as the UK's contested bid was happening, six biotech merger deals were announced in the United States in the space of a week. Serologicals Corporation's (Norcross, Georgia) takeover of Chemicon (Temecula, CA, USA) was that of a public company absorbing a private company. The private company may be delighted to be on the receiving end of a takeover, but it still has communications issues to address even though it is not hidebound by the regulatory framework protecting the shareholders of public companies. And the new parent wants to take over a company that is in good shape and brings all its business partners with it.

Jeff Linton, as vice-president for corporate business development, was closely involved in the acquisition process at Serologicals and has now moved to be president and CEO of Chemicon. "The one simplifying factor with Chemicon was that one man, David Beckman, owned 100% of the company and he wanted to retire. Throughout the process it was made clear to Chemicon's stakeholders that all communications were done with his blessing, although they emanated from Serologicals, the public company."

Serologicals was at pains to convey that Chemicon was being bought as a going concern and a growth platform. This has happily proved to be the case.

"We have had no layoffs, no closures," says Linton. "In fact, we are adding staff.

"We also set up an internet-based Q&A forum for both sides to access. It was important to assure all parties that the commitment to quality in products and relationships was a feature of both companies and would be assured in the new combined entity.

"We wanted this message to go to all those with a stake in the two merging companies, from employees of Chemicon (see Fig. 1) to its customers, distributors and suppliers." Letters went out to all of these as well as to Serologicals' own employees, all of whom were written to personally.

Fig. 1

		Letter to Chemicon employees

Private issues

A private company's investors are likely to be venture capitalists and/or business angels and management. There may also be another key figure whose approval has to be sought—the big pharma partner. Both merging companies may have ongoing drug development deals with incompatible partners. Or the merger may introduce technologies, such as compound libraries, informatics or chemistry skills, that make a partnership redundant. These matters obviously have to be resolved and the solutions communicated to the outside world.

Letting one company drive the communications process, as with Serologicals, is more likely to keep the messages consistent. The May takeover by France's Hybrigenics (Paris, France) of the Dutch company Semaia Pharmaceuticals (Utrecht, the Netherlands) was styled by Hybrigenics CEO, Donny Strosberg as "friendly" and generating "extraordinary synergies between the two companies in oncology." These were both private companies.

Public mergers that don't happen

When a merger does not go ahead, the communications can be "like milking a porcupine," says David L. Clark, vice president of operations at NPS Pharmaceuticals (Salt Lake City, UT, USA), which recently called off its merger 'amicably' with Enzon (Piscataway, NJ, USA). But earlier, when NPS' CEO Hunter Jackson canceled a health conference appearance in the middle of merger negotiations with Enzon, he was soon under siege from the media wanting to know what was up.

Says Clark, "This was an amicable termination. We had come to an impasse. It was in the interests of both companies to move on." The media, however, had their speculations on conversion ratios (how many shares of common stock received in exchange for each stock of the acquired company when a merger takes place) that may or may not have been changed by events arising since the start of the merger negotiations. Both companies were confronted with questions on the various rumors that were circulating.

"The secret to success all the way through is to craft a message that achieves your objectives and stick with it. Of course, we understand that not just the press has an interest in finding out as much as possible. So do investors. We recognize that we are obliged to comment but must be sensitive to preserving the reputations of both parties to the merger."

Some communications tips

Just because there is an atmosphere of treading water in the business world at the moment, it does not mean that every proposed merger is a desperate last measure. It is important therefore to have your story thought through and stay faithful to it (see Box 2). The media is very good at spotting discrepancies in messages. "A public relations (PR) company can act as your frontline liaison with the media and as a filter," says Rowena Gardner of CAT. For a private company, the PR pro also filters inquiries and will help to craft answers to the media's more searching questions.

Once the deal is done it is important to establish a 'business as usual' note to proceedings. The new company name, the new corporate image and livery, and a new look website should be put into place as rapidly as possible.