Bulldog Award Submission: Crisis Management

Case Study: Defeating Shareholder Activism in the Press and Fending Off a Corporate Takeover in the Boardroom

Background:

When Hirco Plc (AIM: HRCO.L), one of India’s largest real estate investment companies, found itself on the wrong side of the barrel of known activist shareholder Laxey Partners in January of 2009, the Company’s survival was at stake. A very public battle raged in the media for five months, spanning three continents.

During this intense and protracted battle, Laxey publicly called for the resignation of Hirco Chairman Niranjan Hiranandani, as well as the entire Board of Directors. Laxey’s goal was to take control of the Company by exploiting the weakness of the current share price of Hirco’s stock, which had been under pressure when the global economy softened in late 2008. Laxey would launch a media campaign designed to attack Hirco’s governance, operating structure, and ability to successfully drive real estate sales in India.

The team at Gutenberg Communications designed and executed a global public relations campaign leveraging the business media in the U.K., India, and the U.S. The goal of which was to refute all of Laxey’s baseless accusations by illustrating the long-term merits of Hirco’s existing operating strategy. Hirco ultimately defeated all of Laxey’s proposals, winning the battle in the boardroom and in the press.

Challenges:

For Hirco, trouble began shortly after the Company announced on December 18, 2008 its intention to simplify its operating structure by merging Hirco Plc with Hiranandani Development Company. Essentially, this would transform the business from an investment company into a fully integrated development company, creating additional opportunities for revenue growth. This came at a time when global real estate was collapsing and unemployment figures were hitting new highs monthly. Laxey would exploit this weakness and attempt to destroy the Company.

Our challenge from a PR standpoint was the inherent complexity of Hirco’s operating structure, requiring more than just a cursory understanding of the business to comprehend its long-term potential. Laxey would exploit this complexity by being first to the table with reporters, and speaking in short, disparaging sound bites attacking the proposed merger and holding management responsible for the short-term softness in share price. Although these comments lacked experience and perspective, they nonetheless garnered the immediate attention of reporters, and the Company found itself in the midst of a major crisis of perception very quickly.

In early January, Laxey began placing a series of articles in London-based business publications calling the merger agreement “shocking and ill-conceived,” a phrase that would be repeated.

We had to react quickly, and across three geographies: India, where real estate is developed; the UK, where the Company is traded on London’s Alternative Investment Market (AIM), and the U.S. where many of its shareholders reside. We quickly determined that the challenge of the PR campaign would be to react quickly and accomplish two critical goals:

1) Demonstrate that Laxey’s proposals to oust the management team were not in the best interest of shareholders, the long-term prospects of the business and the objectives established at the time of the IPO.

2) Educate the media on the benefits of Hirco’s operating structure and the close relationship with Hirananadani Development Company.

The shareholder battle would culminate in an extraordinary general meeting (EGM) on May 6, when shareholders were set to vote on all proposals. This left a short window of opportunity to neutralize Laxey’s advances, rally shareholder support for Hirco, and strengthen confidence in the Company’s long-term prospects under the current management team and operating structure.

Strategy & Tactics

Gutenberg Communications designed and implemented an aggressive public relations campaign in the U.K., India and the U.S. The PR strategy included developing a set of concise messages that were highlighted in the media to steer in the coverage in a way that favored Hirco.

Gutenberg developed and successfully communicated the following key messages to the media, including: Hirco has diligently pursued its investment strategy at the time of the IPO in December of 2006,

including committing all capital toward the development of large-scale, mixed-use townships, and has successfully increased the associated Net Asset Value (NAV).

Laxey’s proposals are not in the best interest of shareholders because:o Laxey is destabilizing Hirco at the time when its links to Hiranandani, a company with

the experience to successfully manage through a downturn, are most important. o Laxey has misunderstood Hirco’s operating structure.o Laxey has failed to demonstrate any strategy to enhance shareholder value, while being

critical of the existing management team.o Laxey’s proposals could irreparably harm the return profile for Hirco investors.o Hirco is not a suitable target for the short-term strategies implemented by Laxey.

Tactics: Media training and preparation; prepared Hirco to convey key messages clearly and effectively. Targeted specific journalists with top-tier business and financial media and industry trade

publications in the U.S., U.K. and India. Arranged for a series of briefings in the UK, India and the U.S. for the Company to meet with

global top-tier publications, and relevant trade publications that would reach an investor audience.

Leveraged Third Party Support for Hirco from key shareholders, (i.e. Standard Life Investments), as well as established proxy firms (i.e. RiskMetrics Group), whose support was also covered in the media.

ResultsAs a result of aggressive media relations tactics, Hirco was able to comment on all key stories relating to the battle with Laxey. We secured top tier and trade coverage with The Economic Times, The Times, Reuters India, Reuters U.K., Investors Chronicle, Hindu Business Line, VC Circle, Property Week News, Livemint, India Express, Telegraph, Real Estate Finance and Investment, SNL Financial and others.This ensured that coverage was balanced and included Hirco’s viewpoint on management’s vision and long-term prospects for the company.

As a result of our PR campaign, there was a dramatic shift in the tone of coverage from January to May, as articles became more favorable toward Hirco leading up to the EGM on May 6. Specifically, articles leading up to the EGM call into question Laxey’s experience and credibility. They also include

comments from top shareholders such as Standard Life Investments, and proxy firm RiskMetrics Group, in support of Hirco management. Hirco successfully influenced the way the developing story was reported, and influenced the tone and outcome of the battle. Note: Detailed coverage is available on request.

Just one illustration of the way Hirco’s viewpoint was communicated in the media can be viewed in this article on CNBC-TV-18, and associated video. It reflects a positive outcome and also represents the fruit of so many months of proactive media engagement during the battle.

In May of 2009, in the company’s extraordinary general meeting, 60 percent of Hirco’s shareholders voted against Laxey’s proposal to remove three Hirco directors and replace them with Laxey’s nominees.

Months later, Laxey sold its entire 11.63% stake, or 8,896,513 shares in the company, at a price of 95 pence per share for a total consideration of 8.72 million pounds (Rs 68 crore). Since then, the share price has more than doubled (as of December 2009).