Communication strategies in M&As

published on 21 June 2024 | reading time approx. 4 minutes

Corporate transactions usually have business goals at their heart. The economic success of the transaction, however, depends on many factors. For example, how will your own employees, customers, suppliers, banks, and other stakeholders react to the news that you intend or have already completed a corporate transaction? Their reaction to the news will be influenced by whether you communicate the news in the right way. A carefully planned communication strategy is therefore a must-have to achieve the objective pursued with the transaction. This is often a challenge, because not only different interests, but also legal requirements, where applicable, should be taken into account. Furthermore, there is no universal recipe for developing the "right" communication strategy. This makes it all the more important to "set the stage" early on.

The background and the area of tension

Corporate transactions affect not only the owners of the companies involved, but also their employees, suppliers, customers, and competing companies – "the market". The public therefore has a legitimate interest in being informed about transactions. And this not only the case when the transaction has already been completed, but also at an early stage in view of the market change resulting from the transaction. Accordingly, the media want to report on this. This is often in conflict with the interests of the parties involved who do not want the deal to be publicised until the risk of the deal failure has been virtually eliminated. Here, confidentiality can be crucial in maintaining the enterprise value and protecting sensitive data. In other cases, news about a takeover can also be liberating in that, for example, it heralds that the deal will secure the continued existence of the company. There are also cases where information is deliberately made public in order to influence the market and the position of the company; to weaken or strengthen the company.

The legal framework

In addition to the considerations regarding communication about an upcoming corporate transaction, which are characterized by business objectives, the statutory notification obligations must also be observed. This includes, for example, filing obligatory notifications with antitrust authorities, BaFin, and other supervisory authorities.

If a corporate transaction is to be an asset deal, the company should observe regulations on the transfer of business, which involves properly informing employees of their right of objection under Sec. 613a, para. 6 of the German Civil Code (BGB). If the transaction is to be a share deal, no business is transferred in the legal sense, so the obligation to inform employees under Sec. 613a BGB does not apply. Nevertheless, informing employees at an early stage can also make sense in such cases if the success of the transaction and thus the continued success of the company depends on the involvement of the employees. Informing the employees early on can strengthen the relationship of trust between the company and the employees. The same applies to informing other stakeholders such as banks, suppliers, and customers. Informing them may be necessary if existing contracts contain change-of-control clauses.

When to inform the public

Finally, the company should carefully select the right moment and especially the right persons to provide the information about the deal to the public. If the company has regular and good contacts with the media, it is easier to use these channels to make information available to the public in a targeted manner. The buyers’ and sellers’ actively handling the process of informing the public also serves to retain control over the interpretation of the reason for the corporate transaction, its objective and implications and thus helps influence what is reported in the media.

Press law measures

Despite a carefully planned communication strategy and precise information to the media, there is still a risk of news being reported incorrectly. If news is reported inaccurately from a business perspective, it should first be checked whether legal action would have any chance of success as this has a significant influence on whether the situation should be initially clarified with the media company. The following claims in particular may be considered

injunctive relief;
correction, revocation;
compensation for damages (material/non-material);
counter statement.

Even if the requirements for claims are met, it must be decided on the basis of the specific circumstances of the individual case whether legal action is appropriate. It should be taken into account that the claim for injunctive relief as well as the counter statement can be asserted by way of an interim injunction. In contrast, claims for correction, revocation and compensation for damages can only be enforced as part of proceedings on the merits. In view of the length of proceedings on the merits, asserting claims for correction or revocation often does not help much, as it usually takes at least a year, and often considerably longer, before a second-instance decision is reached. A corrective notification after such a long time does provide some satisfaction for the companies involved in the transaction, but it comes too late to have any effect within the transaction process. What remains is the option to demand compensation for damages, although there are considerable hurdles with regard to the necessary proof of damage and causality.

In contrast, claims for injunctive relief and counter statement are asserted by instituting injunction proceedings. This means that a court decision can be obtained, and thus action taken, promptly against reported news harming the transaction.

If taking legal action against reported news harming the transaction has any prospect of success, it should nevertheless be examined whether any other arrangement with the media company could be considered. This is advisable especially if the company regularly collaborates with the media company or journalists and can expect the news to be corrected quickly without taking legal measures. If the media company is willing to correct the reporting swiftly, this may be preferable to legal action.

Conclusion

Even before the actual corporate transaction, the scene should be set to prepare for later communication by carefully examining the general framework and developing a communication strategy that will take into account the specific aspects of the case. First of all, the legal framework, which may provide for notification and information obligations and on the basis of which the transaction is likely to be publicised, should be taken into account. Then, the advantages and disadvantages of informing employees, customers, suppliers, banks and other stakeholders as well as the public at an early or later stage should be weighed up. The communication strategy should be developed with great care. It should also consider scenarios where the news becomes public earlier than planned or where the media report misleading or untrue information. The communication strategy should also define measures for such scenarios. It is also the task of management to keep an eye on this.