The ABCs of Covering M&As

By Vandana Sinha
February 14, 2005 03:11 PM

Every week seems to bring another headline about another corporate buyout in the works.

Business reporters wondering when the economy will bounce back should check the category entitled "mergers and acquisitions." It's chock full thanks to a few companies called Verizon and MCI, Sprint and Nextel, Blockbuster and Hollywood Video, Procter & Gamble and Gillette, Coors and Molson, Riggs National and PNC.

"CEOs are feeling more optimistic about the future. For the past two years, they've been holding on to the cash they've earned," explains Amey Stone, a BusinessWeek Online senior writer. "Now it's time to say, 'Let's go and spend that money.'"

Elections are over, and the economy is unwinding. Uncertainty is giving way to confidence in the markets, and companies are cashing in. With the rise in M&A activity, business reporters must infiltrate and unearth a story that often slips into murky corporate spin -- when the executives talk at all.

Your best tools are your own skepticism and well-placed sources found well before the word "merger" hits the markets.

These stories involve the marriage of billions and blockbuster brand names. Avoid getting caught up in the revelry.

"We're great a year later when (companies) have not met their numbers," says Andrew Ross Sorkin, chief M&A reporter for The New York Times. "On day one, too often, we've got the pompoms out and we're doing a cheer."

Take out the analytical hats for the next-day story, not just the anniversary. If companies declare they'll save billions by combining back offices, challenge them. Refer to them merely as claims in your story.

Then look for drawbacks. For one, New York consulting firm Bain & Co. Inc. found that 60 percent of big deals under-perform their peers, and half actually "destroy shareholder value." Those are strong words for a transaction touted as "win-win."

In the tech sector, more so than any other industry, companies have seen these marriages turn into ugly divorces or spinoffs, according to a story Sorkin wrote last week.

Another downer -- layoffs. Local employees will likely lose jobs after this deal. Tell their stories.

Reporters should stock rolodexes with research analysts, local institutional investors, labor unions and competitors who can bare the deal's underbelly, even if on background. Sorkin also suggests reporters Google the words "integration specialists" to get their takes on the press release's promises.

Regardless of a CEO's boasts, this month's celebrated union could become next year's most talked-about fallout. Cases in point: AOL-Time Warner and HP-Compaq, which just lost its CEO.

Indeed, human drama is a colorful backdrop for these negotiations. Describe that. Company executives all but read from scripts when they announce deals, but ask them offbeat questions: What was the deal's code name while pending? Where did most negotiations occur? How did management celebrate when they nailed that last number?

That doesn't mean assuming the role of intense inquisitor. "If you approach them with guns ablazing, you're not going to get very much," Sorkin says. Instead, he says, let them wax on about secrets held from their own spouses. "For months, they haven't been able to tell anyone a thing. They're dying to tell the story."

Part of the M&A story is discovering it before executives proclaim it in press release form. That takes source building starting from day one of the job, not day one of the merger announcement.

"If you try to come in cold and make calls, you're not going to get anything," Stone says.

List the companies you cover. Identify the circle of folks who'd know about merger plans months, even years, ahead. Management. Board of directors. In-house counsel. Sometimes, the company's strategic development arm. Perhaps the company has hired outside consultants, investment bankers, lawyers or specialized PR firms.

The closer they move toward deals, the more the circle widens. Look for jilted bidders. Or maybe the company, in its attempt to turn the announcement into a gala event, has booked local hotel ballrooms and hired local printers to churn out glossy brochures.

"All these people should be considered sources at some point," Sorkin says. So meet with them in advance. Suggest off-the-record introductory chats over coffee or lunch. But always be wary of their agendas.

Step two, Sorkin says, is determining which company is a potential merger candidate. Scan their stocks hourly -- any up-or-down activity without accompanying news is reason to pick up the phone and start asking questions. Sorkin checks chat rooms for merger gossip. Other reporters have been tipped off by Federal Aviation Administration's log of corporate jet flight plans.

At the St. Louis Post-Dispatch, which is covering its own employer's potential sale to Lee Enterprises Inc., reporters found that Lee's corporate jet had flown to St. Louis twice in December and January, weeks before the sale was announced.

Merger hunting may sound like a pointless pursuit. Sorkin jokingly calls his "the most inefficient job in town."

"You are constantly searching for a needle in a haystack," he says. "Usually there's only one needle. On most days, there's a lot of hay."

But that one needle may pierce hundreds of local workers and investors. There's nothing pointless about telling that story.

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Copyright © 2008 Donald W. Reynolds National Center for Business Journalism