Risk Alert, Volume I, Issue 2, Fall 1997

http://www.krollassociates.com/kins/riskaler

Hostile Takeovers in the Late '9Os

An Exercise in Crisis Management

By Ernest Brod

Hostile takeovers have become a part of business life in the second half of the 1 990s. The "corporate raids" of the 1 980s have given way to "strategic" deals, often involving respected corporations. Commentators constantly point to the "more genteel" nature of today's corporate contests. But corporate managers who believe that unsolicited approaches from their pinstriped counterparts will be easier to deal with than last decade's raids are candidates for early retirement.

The rhetoric may be more controlled when the aggressor is AT&T or IBM or Hilton - or an oldline railroad, bank or utility - but the threat to the targeted company is far greater than from the corporate raiders. The Ivan Boeskys and Carl Icahns picked a target and played out the game, making judgments about whether to ante up, fold, accept greenmail, etc. Now that the barriers are down, attacks may come from well-heeled corporations, pursuing high-stakes strategies

Your pursuer may be squeezed by the intense competition caused by deregulation and may be desperate for a product market extension or diversification. It may consider the implementation of its strategy to be a survival issue - and acquisition of your company may be at the heart of its strategy.

Under these pressures, your adversary will be conducting a carefully planned and well-financed campaign. It will not be susceptible to greenmail, and far from conducting themselves in a gentlemanly manner, many "corporate America" bidders are going right for the jugular with sophisticated legal, investigative and public relations tactics.

What should a target do to avoid becoming a victim? Because the key actions must be taken before the bid, and in the first hours after the bid, the first essential step is to recognize yourself as a potential target. What follows are a few points we have found to be critical to staving off an attack:

• Institute an early-warning intelligence program.
• Conduct a strategic analysis to identiy industry participants and/or new market entrants who might target your company.
• Task your competitor analysis team or a business intelligence consultant to search for the indications of interest in your company.
• Strengthen your stock watch activities to alert you to unusual activity or significant new ownership in your stock.
• Select expert takeover counsel and have them review your anti-takeover program, including poison pill and staggered board elections of directors.
• Choose a public relations firm with experience in hostile takeover communication tactics.
• Select a reliable corporate investigations firm.
• Designate a limited number of key internal executives who will focus on the takeover issues while the rest of the management team keeps the business going.
• Your team of advisors should help develop the strategy Thereafter, the legal, investment banking, public relations and investigative activities should be clearly focused on the strategy.
• The support of your directors is vital. Keep them informed and involved.
• Your communications and actions in the first days will be carefully scrutinized by your adversary and your shareholders. Clear, bold steps are required. Quick legal strikes and aggressive investigative activities can signal to your adversary that it is in for a difficult battle.
• The contest must be fought with intelligence. Information about the bidder's strategies and tactics will help you stay a step ahead. Your internal culture must be tightened to prevent information leaking to the other side. Many targets have demonstrated that hostile takeovers -even those launched by the rich and famous -can be survived.

What these victors have in common is a strong, determined CEO whose well-prepared advisors work as a team. But the road to success begins with the awareness hat hostile takeovers have gone legit and an 800-pound gorilla may have its eye on you.

Ernest Brod is Executive Managing Director of Kroll Associates. He heads Kroll's Corporate Contest Practice and is the architect of the firm's Business Intelligence Service.

For information on Kroll's strategic business investigations, please call (212) 833-3383.