Grilling Managers About Acquisitions:Stockholders Will Pepper Executives With M&A Questions at Annual Meetings

While prepping for traditional questions on social responsibility, management pay, and stock price performance, corporate executives also should buckle down for a barrage of questions on their mergers, acquisitions, and divestitures during the 1998 annual meeting season. Questioning, according to the accounting firm of Deloitte & Touche, should probe well beyond the “good deal/bad deal” patina. Managements should be set to explain general acquisition strategies, rationales behind specific deals, impact on competitive positioning and the stock price, even m&a accounting treatment. They may have to fully defend their transactions and sketch the investigative and analytical processes that led up to them. And, warns the accounting firm, don’t ignore the sell side and stockholders’ interest in their company’s becoming a target. Covering the Territory The prospective scenario on m&a is a key part of the 1998 version of Deloitte & Touche’s annual advisory booklet, “Questions on Stockholders Meetings,” which is aimed at alerting managements to the hot-button issues on the minds of their shareholders. Although mergers, acquisitions, and divestitures are not strangers to the annual meeting give-and-take, Deloitte & Touche suggests that 1998 questions will be harder and more extensive than ever. Not only are mergers big news but they are relatively new initiatives at many companies, and, coincidentally, new developments for their investors. Because of the strategic forces jolting business in the 1990s, Deloitte & Touche points out that many firms “that once were not acquisition-minded or that carefully approached acquisitions are now becoming more active and moving rapidly to acquire suitable targets before their competitors do.” “Management should be prepared to explain its objectives and strategies regarding potential mergers, acquisitions, or formations of strategic alliances,” the booklet stated. “Stockholders are concerned about how merger and acquisition activity affects the company’s long-term objectives and near-term effect on the market price of their shares. Specifically, stockholders are interested in the actions management and the board have taken to ensure that stockholder interests have been protected and stockholder value enhanced.” Specific questions will range from the purely mechanical to the most exotic aspects of strategy and competitive positioning, says Deloitte & Touche. Stockholders may want to know about the relatively mundane, e.g., whether the company has a full-fledged m&a department, whether it does its deals in-house or retains third-party advisers, etc. Explanations of the strategic reviews and due diligence processes for key deals should be considered for the Q-and-A docket along with overseas opportunities opened by developments in Asia, Europe, and Latin America. Still further up the scale are such issues as the need for acquisitions to be globally competitive, consolidation trends within the industry, planned divestitures, and the success or failure of postmerger integrations. Fielding a Bid But Deloitte & Touche also notes that sell-side potential won’t be lost on stockholders. Possible queries: “Under what circumstances would the company be willing to be acquired? Is management aware of any potential takeover bids? Were there any tender offers for the company’s stock made in 1997?” A really delicate one to watch is how the board will react to an unsolicited bid, e.g.: “What procedures would be used to evaluate the offer, and how would stockholders be heard in deciding whether to accept the offer?” and “Would shareholder value be enhanced if a bid were made for the company?”