Shareholder Angst During M&A – Part 2

Maintaining shareholder confidence during acquisitions, divestitures and spin-offs can be challenging.  Managing shareholder expectations for the ongoing business while managing expectations for the successful completion of the transaction is demanding.

This is the second of a three-part series about maintaining shareholder confidence through the completion of transactions which accelerate changes in your company’s investment characteristics.   This installment is about answering questions following the initial announcement.

1)    Common elements of the initial announcement (published November 23, 2014)

2)    Sample questions in preparation for Q&A (published December 16, 2014)

3)    Aligning shareholder mix with new investment characteristics

Q&A provides the greatest opportunity to get off point and distracted from key messages about the timing, financial specifics and long-term strategic significance of the transaction.  The same is true for any interaction from conference calls to face-to-face meetings with existing and prospective shareholders, particularly when questions appear to come from left field or focus on the short-term.  Therefore, preparing in advance for potential questions by developing thoughtful answers in the privacy of your own office with legal review is far better than trying to wing it in real time in front of an audience.   The process will help you return to key messages during Q&A and may also improve the content of the initial announcement and your conference call script.

Sophisticated investors can appear skeptical about the announced transaction which may have less to do with your management team than the previous failures of other companies in similar situations . . . transactions announced but not completed; transactions more dilutive to earnings than originally expected; shareholder lawsuits about paying too much or too little; poor integration or separation due to timeliness, comprehensiveness or drain on management’s time, etc.

Do not be surprised if some investors do not love the idea initially.  Avoid becoming defensive, and more importantly, avoid letting your own enthusiasm for the transaction encourage unrealistic expectations.  As mentioned previously in the first installment, due diligence just does not answer all of the questions and precision is not possible upon initial announcement.

In addition, shareholders asking questions at the time of the announcement may not be the shareholders of the new entity created by the transaction.   The next and last installment of this three-part series is about aligning the company’s shareholder mix with its new investment characteristics.

The following examples are intended to be a starting point from which to build an effective Q&A document relative to your company and its industry.  Some questions are specific to acquisitions/mergers or divestitures and others are generalized to include acquisitions, divestitures and spin-offs.  Management should limit their comments to the business entity they will be managing after the transaction.

  • Are you planning to change the brand names of products or services to capitalize on brand recognition?
  • How should we think about the associated risk of customer/client conflicts?
  • What geographic markets are shared and will there be divestures as a result of overlap or plans for consolidation?
  • Are there increased competitive opportunities through the combination such as bundling opportunities, broader product offering, full-service capabilities, forward or backward integration?
  • Do you see something in the marketplace that makes this combination/separation more defensive?
  • Is there something that needs to be done at either company to be more competitive and deliver what clients/customers want and need?
  • If not defensive for today, what changes do you anticipate in your industry that makes this combination/separation make sense?
  • Why are you combining/selling/spinning-off the business now?
  • Does this combination/separation reflect a major shift in the structure of the industry(ies)?
  • Any thoughts on how your competition may respond to the transaction?
  • Please provide more details around your cost synergies evaluated and areas to be further investigated after consolidation/separation.
  • Please provide more details around your revenue synergies evaluated and areas to be further investigated after consolidation/separation.
  • Be prepared to discuss how each target will be reached, in what time frame.  Is it front-end loaded or back-end loaded?
  • Is this incremental to any margin expansion previously announced or an acceleration of those plans?
  • Any preliminary thoughts on segment reporting after consolidation/separation?
  • Does the transaction alter any previously announced expansion plans?
  • Are there opportunities to monetize non-core assets of either company after the consolidation/separation?
  • Will either company continue with previously announced buyback programs?
  • Will you continue to pay dividends?
  • Appears each company has different philosophies for capital structure.  Can you talk a little bit about how this transaction could potentially change your view of the balance sheet?
  • What will happen to previously announced capital expenditure plans?
  • What are you assuming for the tax rate of the combined/separated company(ies) and also the rate on the debt financing?
  • Can you walk us through the implementation of the integration/separation and identify areas you think will be easy and what will be difficult?
  • Will you merge technology to a single platform?
  • Are there cultural differences between the two companies?
  • Is there a fundamentally different approach to efficiency at the two companies?
  • Any sense about how the antitrust process could develop?
  • What are the regulatory hurdles and timing of each?
  • Why do you think regulators will approve this transaction?
  • Does the transaction require Board and/or Shareholder approval and what is the timing of each?
  • Is there anything else that could break this deal, such as covenants or agreements?
  • Is there a break-up fee for this transaction?
  • When did the two companies start talking about a transaction and who approached whom?
  • When you started to talk about a combination/separation, what was the list of potentially big issues and how have you resolved those concerns?
  • Explain the decision to offer all cash or all stock or a combination, both from the acquiring company’s point of view and the acquired company’s point of view compared with previous acquisitions.
  • Sometimes the company being acquired/sold loses productivity and some employees leave for other jobs between the announcement and the close of the transaction.  How are you going to continue to retain and motivate employees?
  • Are any Board members of the company joining the Board of the acquiring/separating company?  Will that be a net addition or an increase in the number of your Board of Directors?
  • Who will be CEO and CFO of the merged/separated company(ies)?
  • What management agreements do you have with the company being acquired/separated?
  • Can you provide any information about succession planning?

The Heights is an experienced, responsive and intuitive investor relations consultancy with a proven process designed to build a comprehensive three-year IR Plan in three months.  Our guaranteed approach removes the guesswork, makes an immediate impression within the financial community and allows you to focus on running your business and building value for your shareholders.  More information about The Heights is available on




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