Market Column



H.F. Ahmanson & Co. has been sending some unusual letters to its fellow bankers at Great Western Financial Corp. recently. Most of us just use stationery, but Ahmanson prints its missives on the front section of the Los Angeles Times.

“An Important Message to Great Western,” heads the full-page Times ad that began running shortly after Ahmanson’s Feb. 17 hostile takeover bid for Great Western. “Begin discussions with us NOW!” it exclaims.

While the Times undoubtedly appreciates the business, if Ahmanson really wanted to send a letter to Great Western, wouldn’t a 32-cent stamp have been cheaper?

OK, that’s a rhetorical question. Ahmanson, of course, isn’t really trying to reach Great Western. It probably isn’t even trying to reach Great Western’s shareholders, the ones who will ultimately decide the thrift’s fate. It’s trying to influence ordinary folks, like you, me and your Aunt Mabel.

A decade ago, the financial gurus who orchestrate corporate takeovers scoffed at the marketing department when it tried to get involved. But as the nature of hostile acquistions has changed, so has the importance of the spin doctors.

“I used to really question the effectiveness of these large ads back in the ’80s, when these were cash tender offers,” said David Batchelder, chief executive of financial advisory firm Batchelder & Partners in San Diego.

Instead of straight cash-for-shares deals, in which the shareholders were likely to simply take the best offer they could get, most hostile takeover attempts in the ’90s (including Ahmanson’s battle for Great Western) involve trading the shares of the acquirer for shares of the acquiree. Batchelder and others say that makes marketing more important.

The value of stock, unlike cash, fluctuates. That means the acquirer has to convince shareholders that its stock will retain its value after the deal. Meanwhile, the board of directors of the target company will often mount its own P.R. campaign to stockholders, trying to convince them either that their shares will be more valuable if the company remains independent, or that another acquirer is likely to come along with a better offer.

Most of the marketing blitz aimed at shareholders is conducted behind the scenes, financial consultants explain.

A majority of the stock in large corporations is typically owned by a handful of institutional investors. When a company is mounting a hostile takeover, the usual approach is for the investment bank or proxy solicitation firm handling the deal or even the CEO of the acquiring company to call the heads of those institutional investors immediately to feel them out, according to Lloyd Greif, president of invesment bank Greif & Co.

“Once the stock stops trading, those calls to the institutional investors go out,” Greif said. “In the case of Ahmanson, I guarantee they got a response that Great Western shareholders weren’t necessarily die-hard Great Western shareholders.”

But if the ads were intended to reach shareholders, wouldn’t they be more effective if placed in the business section rather than the front section of the paper?

Yes, they would, but Greif explains that these ads aren’t really intended for shareholders. Ahmanson is hoping to generate goodwill among banking customers, employees of both companies and community leaders, in addition to sending a message to competing bidders.

“A lot of it is psychological warfare,” Greif said. “I think it’s part of putting the other team off balance, putting pressure on them.”

After Wells Fargo Bank acquired First Interstate Bancorp last year, a feeding frenzy to steal disgruntled First Interstate customers began among other California banks and thrifts. The acquisition itself became fodder for marketing efforts by such insitutions as Glendale Federal Bank, which ran an extensive ad campaign poking fun at Wells Fargo and urging its customers to switch.

In addition, the acquisition of First Interstate was criticized by L.A. politicians because it meant the loss of yet another corporate headquarters from Los Angeles.

Ahmanson hopes to avoid all that by portraying its acquistion of Great Western as good for customers and good for Los Angeles arguing in its advertisements that if locally based Ahmanson doesn’t end up with the thrift, an outside institution will.

The ads are also intended to frighten off other bidders by showing that Ahmanson is very serious about this acquisition, Grief said.

Whether this kind of advertising really works is a matter of debate, but the fact that it appears in most major acquisition attempts seems to indicate that decision-makers think it certainly can’t hurt.

Michael Sitrick of Sitrick and Co., for one, thinks the ad dollars in cases like this are usually misspent. As one might expect from the chairman of a major financial public relations firm, Sitrick believes a good P.R. campaign is far more effective than an ad blitz.

“All things being equal, my recommendation traditionally has been, use the media to enact your strategy,” Sitrick said. “You want to get a news story out there that is going to create a reaction among the public, which, in turn, will create the desired reaction from your target.”

Of course, you can’t directly control the message through P.R. the way you can with advertising. But Sitrick contends that reporters can usually be steered to get the desired message into the story and a big acquisition is automatically newsworthy enough to generate heavy coverage.

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