"3COM TURNS TO MARCOM TO SELL U.S. ROBOTICS DEAL "
Source: Business Marketing
Business Marketing : Santa Clara, Calif.-based 3Com Corp. knew its acquisition of modem powerhouse U.S. Robotics Corp. would be a tough sell to its investors.
3Com, the world's second largest networking company that makes routers,
hubs, switches and other products (Cisco Systems is the largest), expected its
investors to question the wisdom of buying U.S. Robotics, which was having
problems rolling out its latest modem. Investors in Skokie, Ill.-based U.S.
Robotics were skittish about 3Com, which had seen its stock price slide
before the merger was announced.
``The idea wasn't really well-received,'' said James P. Wade, an analyst for
Alex Brown & Sons, Baltimore. ``They [the investors] were pretty shocked by
it.''
But 3Com ultimately prevailed, in part because of an aggressive coordinated
communications campaign that began with presentations within hours of the
deal's announcement and concluded with a road show hosted by company
bigwigs, said executives and observers.
Pitching the deal
Before the deal was announced, Barbara Shapiro, 3Com's
VP-communications, worked on a strategy to pitch the deal to investors,
analysts and the media.
Ms. Shapiro's job was tougher for this pitch than during any of the upward of a
dozen acquisitions 3Com had made earlier. Aside from the size of the deal-its
original value of $6.6 billion shot up to $8.5 billion at its close-a merger of a
networking company and a modem maker was unusual.
``There was a lack of understanding of the merger,'' Ms. Shapiro said.
3Com portrayed the acquisition as offering customers a broader array of
products and services, pitching that message in a conference call with 400
investors after the deal was announced Feb. 26. It also got itself on the agenda
at a Robertson, Stephens & Co. investment conference being held that day in
San Francisco, reaching more investors.
The next day, 3Com made a presentation at an analyst conference it was
sponsoring.
``There are a lot of investment conferences,'' Ms. Shapiro said. ``Usually
something happens somewhere in the world that you can use to your
advantage.''
Media conference
The company also contacted media outlets the day the deal was announced
and held a media conference the next day that brought in several hundred
reporters.
Most of the people doing the pitching were high-ranking executives of the
companies, including 3Com CEO Eric Benhamou.
``We're very fortunate to have some good speakers among our senior
management and they understand the value of communications,'' Ms. Shapiro
said.
Besides speaking in public forums, 3Com executives also tried to assuage any
concerns in meetings and meals with shareholders.
Nevertheless, criticisms of the deal and its timing lingered. As months wore on,
3Com couldn't issue direct mail or advertising to promote the deal because it
was under regulatory scrutiny.
Stock prices also reflected investors' ongoing concerns. U.S. Robotics stock
went from $61 on Feb. 26 to a low of $45.0625 on April 21. In the same
period, 3Com's already declining stock fell from $39 to $26.375.
``We couldn't proactively sell the deal,'' she said. ``Our hands were kind of
tied and that was a tough time.''
By the end of April, however, all the regulatory hurdles had been negotiated
and 3Com could again make its case. But that did not include advertising of
the deal. (U.S. Robotics, which spent $16.8 million in 1996 on media
measured by Competitive Media Reporting, spent $11 million just in the first
quarter of this year. On the other hand, 3Com spent $1.9 million in 1996. The
$468,000 it spent in the first quarter is on pace with last year.)
What 3Com did do is stage another round of investor presentations, starting
with one in San Francisco April 29.
Investor presentations
During the next month, top executives of both companies met with more than
400 investors either one-on-one or in presentations. In particular, 3Com
focused on investors who were unfamiliar with one of the companies.
Aided by Coltrin & Associates, New York, its public relations agency, 3Com
also revamped its message. Initially it portrayed the merger as broadening its
range of products and services. Now, 3Com stressed how the acquisition
helped it become the biggest remote access provider worldwide.
The executives stressed other benefits of the merger, such as 3Com gaining
U.S. Robotics' experience in selling through retail.
According to one analyst, this road show was classic 3Com.
``They have frequent analyst meetings,'' said David Tacata, an analyst with
Gruntal & Co. ``They're one of the better tech companies in keeping investors
informed.''
Approving the deal
The revamped message and renewed handholding by 3Com executives-not to
mention a buoyant stock market and U.S. Robotics getting its new modem to
market-warmed investors to the deal, and both companies' stock began rising.
Shareholders of both companies approved the deal.
For Ms. Shapiro, the final shareholder vote on June 11 is testimony to the
power of talking to investors.
``You need a totally integrated approach,'' she said. ``The ability to think
globally and across multiple channels is very important.''
<<Business Marketing -- 08-01-97, p. 10>>
[08-18-97 at 16:05 EDT, Crain Communications] |
