AIMA

The Alternative Investment Management Association

Alternative Investment Management Association Representing the global hedge fund industry

Deal or no deal: 'activist' hedge funds embrace media strategies

Thomas Walek and Mary Beth Kissane

Walek & Associates

Q3 2007

 

Deal by deal, activist shareholders are remaking the corporate landscape, the M&A space and proxy battles. Behind virtually every such deal, a hedge fund manager is either leading the charge or trying to muscle in on the deal.

Hedge funds and their cousins in private equity and even traditional long-only managers are stepping to the plate backed by larger pools of capital and no apparent limits on the size or complexity of the deals attempted. Knowing full well the importance of the media and public relations to the successful completion of these deals, each is embracing increasingly sophisticated media strategies.

Regulations have changed. Proxy solicitations and shareholder access are getting cheaper. The expense of the traditional proxy battle is the reason activists began employing media strategies in the first place. Behind-the-scenes negotiations with the company’s board may often be complemented by media and public perception strategies. To make certain that these increasingly global deals do not become “no deals,” hedge fund executives are clearly employing such strategies. A media search reveals startling results. In 2006, 1,948 articles were written on hedge funds as activist shareholders – more than double the number from 2005.

This article looks at some of the public relations issues of today’s activist shareholders from the perspective of the hedge fund manager. As this is a global phenomenon, this perspective can be useful for managers doing deals anywhere around the world.

The High Ground of Shareholder Value

Doing what is “best for shareholders” is a hotly-fought space. Corporate executives are quick to embrace the long-term shareholder value platform, arguing that only a committed insider is truly aware of and able to deliver the long-term view, long-term benefits and long-term performance that shareholders want. While these deals are often played out in public, they can happen entirely behind-the-scenes. Hedge funds, however, cannot count on board negotiations to necessarily accomplish their goals. They must be ready to engage the press on a moment’s notice. In fact, hedge funds may want to take first-mover advantage with a pre-emptive media strategy.
Hedge fund managers must be able to quickly and effectively persuade investors that they have the better strategy to unlock shareholder value.

Persuasive Guerrilla Warfare

Corporate issuers and their advisers typically make the anti-hedge fund case: Hedge funds are always short-term; always look to break-up companies; and are not concerned about shareholders, employees, the community or the common good. Pigeon-holing hedge funds as “short-term players” ignores the value they can bring in unlocking undervalued, under-utilised or poorly managed corporate assets. Hedge fund managers need to be ready to counter with their own media messages and strategies.

When engaging in board negotiations, a company may look to concede something to show they are dealing in good faith. Majority voting, for example, has been used by corporate issuers as an olive branch to shareholders.

Harsh Light of Transparency

We know that the media writes about hedge funds every day but once you are engaged in the deal they will turn on the high beams. Have every point of your persuasion campaign ready: Have a war room setup; know your target press and messages; know the relevant blogs and consider setting up your own website or blog.
Have standard crisis communication practices in place so you can reach to the news cycle on an ongoing basis. As in any crisis situation, decisions need to be made beforehand including what to release to the media, whether it be “on background” or distributed broadly and what types of media to target.

Get to know the local press and political machinery. Too often, hedge funds mount global campaigns when they should be more targeted or localised in their approach. One client of ours even went so far as to prepare a holiday greeting in the form of an advertisement demonstrating a commitment to the local community and workers impacted by their activist role.

Deal or No Deal?

It is not just about the media. It is also about knowing how to work in the boardroom and in the local community. This is all part of the changing landscape but using the media is where those trends come together. As securities regulations and technology continue to change, there will be less expensive strategies available as proxy solicitations and shareholder access become less expensive. These changes are making it faster, cheaper and easier to mount activist campaigns. Have the most persuasive story to tell and know who to tell it to or risk hearing, “No Deal”.

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