By: Dominic Jones

ON MONDAY, March 19, 2001, the world awoke to an announcement out of Melbourne, Australia, of a merger to create the world's second-biggest resources company. Several hours later, another announcement crossed the wires about a merger to create the largest wholesale drug distributor in the U.S.

Aside from the coincidence of being announced on the same day, there were stark contrasts between how the two deals were communicated to the Street. Also notable were the sharply different reactions investors around the world had to the deals.

The merger announcement of Australia's BHP and UK-based Billiton plc was precisely executed, clearly positioned and proactively communicated on both companies' websites. It was followed by enthusiastic buying of the companies' shares.

By contrast, the link-up between US companies AmeriSource and Bergen Brunswick was, by many accounts, poorly communicated. It was followed a quick sell-off in the parties' stocks.

Mergers often fail to impress
Of course, it's simplistic to explain the market's reaction to a merger by how the companies use the web to explain their stories. There are too many structural details and negative market perceptions about mergers to do that.

Indeed, it's not uncommon for markets to react adversely to corporate combinations. A recent study for the Chicago Tribune by consulting firm A.T. Kearney of 50 large mergers between January 1990 and September 1999 found that 69 percent of the deals lagged their industry average in total shareholder return in the two years after the deals closed. Several other studies have found similar results.

In a bid to identify the commonalities underlying successful mergers, a smaller number of studies have tried to focus on the 30 percent of deals that do end in superior stock returns. These have led to the conclusion that there are just a handful of success drivers, ranging from a clear rationale to quick closing of the deal.

The importance of strong communication
One of these success factors is the partners' skill at communicating the deal to investors. In a December 2000 Harvard Business Review article on friendly acquisitions, authors Robert Aiello and Michael Watkins cite the ability to "enthusiastically sell a deal to stakeholders" as an important ingredient.

"Smart acquirers are swift to follow their final deal agreements with aggressive and carefully planned public relations and investor relations campaigns, often involving professional PR advisers," say the authors.

This seems to ring true in the cases of the BHP-Billiton link-up and the AmeriSource-Bergen Brunswig combination. My assessment is focused on how the companies used their websites to explain the deals and the markets reaction to them on the day of the announcements.

The BHP-Billiton merger

BHP CEO Paul Anderson (left) and Billiton CEO Brian Gilbertson.

Story breaks in the press: Unofficial news of a pending merger between the two companies broke on Sunday, March 18, in the London Sunday Business newspaper. Both companies refused to comment on the "speculation."

Initial reaction from analysts to the idea of a possible US$28 billion merger between the Australian mining and oil group and the London-listed miner was less than favorable.

A Reuters article on Sunday afternoon quoted two analysts questioning the logic of a potential link-up. One suggested that any merger would be a shame since Billiton was a better managed company than BHP.

Monday morning confirmation: At 8:00 a.m. Melbourne time (11:30 p.m. on Sunday in London) BHP and Billiton issued a joint news release announcing their agreement to merge. The detailed 28-page news release -- headlined BHP and Billiton merge to create a premier diversified global resources group -- made extensive use of bullet points to highlight the rationale and synergies of the deal.

Two hours later, the companies held a joint conference call with analysts and media that was webcast live on both companies' websites. The two CEOs swapped home cities for the conference call. London-based Billiton's Brian Gilbertson hosted the conference call from BHP's Melbourne headquarters. BHP's Paul Anderson was in London, where he would later host a meeting with European analysts and media.

The tightly-scripted webcast featured audio with synchronized slides. It began with a brief, enthusiastic statement on the deal from Anderson in London before Gilbertson gave a 30-minute presentation entitled Strength - Flexibility - Growth that pitched the strategic rationale and growth benefits of the deal.