EDITION 2

WeeklyAugusT 3, 2012

CNOOC’s Nexen Bid: For Chinese Acquirers, the Challenges Never End

Is Sandy Weill Right?

Hal Singer: Libor and What’s Next for Big Banks

How To Respond When Digital Social Activists Have You In Their Crosshairs

The Marissa Mayer Saga: What Yahoo! Seems To Have Learned From Playboy’s Christie Hefner

Waj/shutterstock.com

The timing was exquisite.

On Friday, Senator Charles Schumer of New

York sent a letter to Treasury Secretary Timo-

thy Geithner urging him, in his capacity as

chairman of the Committee for Foreign Invest-

ment in the United States (CFIUS), to withhold

approval of the acquisition of Nexen by the

Chinese National Offshore Oil Corporation

(CNOOC), China’s state-owned and third-largest

oil company.

Nexen, which has significant holdings in tar

sands and shale drilling expertise, is a Cana-

dian company but its Gulf of Mexico assets

subject the deal to U.S. approval.

If approved, that deal would be the largest

overseas acquisition to date by a Chinese en-

tity: $15.1 billion in cash, which includes a 61%

premium. The stakes are high as CNOOC would

become a major player in the North American

energy market, toe-to-toe with the brand-

name energy companies of the Western world.

Schumer, though, wants Geithner to hold off

until the Chinese provide more trade reciproc-

ity. (Never mind that CIFIUS’ specific charge is

national security and not marketplace access.)

But Schumer wasn’t the only one making

CNOOC/Nexen-related news last week. Also on

Friday, the SEC filed an insider trading com-

plaint against a Hong Kong entity that pur-

chased $14.3 million in Nexen shares four days

before the CNOOC bid. (That entity has a long-

standing cooperative agreement with CNOOC.)

The complaint obviously fuels the political

fires, as does the reminder, duly echoed in

early media reports, that the “insider culture”

is ingrained in Chinese business culture.

Schumer’s insistence on reciprocity may or

may not be a red herring; the threads here

wind well beyond that single issue in any

event. There is the national security issue of

which CNOOC became painfully aware after its

hostile 2005 bid for Unocal was torpedoed by

legislators on those very grounds. In turn, the

security issue mirrors the pandemic public dis-

trust of the Chinese in the U.S. that has been in-

ThE ChAllENgEs NEvEr ENDCNOOC’s NExEN BID: FOr ChINEsE ACquIrErs

richard s. levick, Esq.Originally Published on Forbes.com

zhuda/shutterstock.com

Weekly

maximum public reassurance in Canada. In

addition to the big premium, CNOCC secured

the full support of Nexen’s board ahead of

need. The company has promised continu-

ous capital investment and ongoing energy

research in North America. Shares will be

listed in Toronto. CNOCC has certainly vowed

to preserve jobs. It will also make Calgary the

headquarters for North and Central American

operations, buttressing that city’s position as

Canada’s energy industry hub.

The company has most certainly learned its

lesson from the Unocal mishap. (The potentially

devastating insider trading charge must be all

the more irritating for CNOOC in light of how it

has done so many other things right.) Of course,

a strategy that works in Canada won’t necessar-

ily work in the U.S., especially during an elec-

tion year. Yet CNOOC has sounded the best and

only themes it can, in any country—a counter-

narrative to xenophobia and demagoguery that

is effective because it speaks so directly to the

practical concerns of all stakeholders.

The biggest theme is, of course, job creation.

But that message has to be credibly bolstered

by an assurance of ongoing investment in the

acquired entity, such that job growth stateside

is sustained rather than outsourced sooner or

later. In case you missed it, outsourcing is a hot

topic these days and, at this sensitive moment,

it is essential for any foreign company entering

the U.S. to be on the right side of this domestic

issue. CNOOC seems to be.

CNOOC has reportedly deployed an army of

lobbyists to support the Nexen acquisition,

but publicly visible allies are also essential.

When, for example, Borse Dubai merged with

NASDAQ in 2009 – another instance in which

public phobias could have played a decisively

negative part – those allies included New York

Mayor Michael Bloomberg, who articulated the

benefits of the deal in terms of both jobs and

U.S. competitiveness. That message was insis-

tently reiterated in every appropriate context

so that, by day’s end, CIFIUS approved the deal

without mandating a single divestiture.

In some situations, foreign acquirers can even

go further. Are there union jobs in the offing?

Can those unions be enlisted on behalf of an

acquisition or other investment? If so, that

means direct leverage with CIFIUS, at least

while a Democrat is still in the White House.

Yet whoever the spokesperson and whatever

the tactics, there is only one viable strategy to

advance the interests of controversial foreign

companies in the U.S. Such companies (or

countries) cannot reason people out of fears

nurtured through decades of political animos-

ity and some undeniably cutthroat competi-

tive practices. They can only offer something

more compelling than those fears, which is the

demonstrable hope that, if you work with us,

tomorrow will be sunnier than today.

American workers will hear that message.

They don’t really have much of a choice.

Richard Levick, Esq., President and CEO of LEVICK,

represents countries and companies in the highest-stakes

global communications matters — from the Wall Street

crisis and the Gulf oil spill to Guantanamo Bay and the

Catholic Church.

L

flamed by defective and dangerous product im-

ports as well as a myriad of trade and intellectual

property issues. The insider trading allegation is

all the more serious a threat to the CNOOC/Nexen

deal simply because it further confirms such

deep-seated public apprehensions.

At a time of falling asset prices, there is also

the sub-textual fear that the Chinese can now

simply buy us up. In terms of energy, they do

indeed have a “once in 100 years” buying op-

portunity, as the investment bank Sanford C.

Bernstein and Co. put it. Whether the CNOOC/

Nexen deal goes through or not, expect the

Chinese buying spree to continue in energy

markets throughout the world.

In terms of a go/no-go impact on any such deal

in the U.S., Schumer’s letter is a reminder that,

as the linchpin for foreign companies buying

up American assets, CIFIUS is not necessar-

ily impervious to public mood swings. In fact,

from a strategic communications standpoint,

the committee is the ultimate audience in

any campaign to mount support for a foreign

acquisition, or to block one. The criticism of

Schumer that’s already been made, for arbi-

trarily targeting this particular acquisition,

and for political opportunism in general, may

not be particularly useful to CNOOC. Chances

are, no one’s telling Mr. Geithner anything he

doesn’t already know.

Meanwhile, Schumer’s agenda is just one of

many that impinge on the CNOOC-Nexen deal.

Other lawmakers like North Dakota Senator

John Hoeven focus on Keystone, and how ap-

proval of that pipeline is all the more exigent

in light of China’s intended entry into the Cana-

dian market.

Amid such dueling agendas, CNOOC has actu-

ally played the communications card very

smartly. The deal itself is structured to provide

Jaochainoi/shutterstock.com

The provisions of Glass-Steagall, which stem

from the Banking Act enacted in 1933 at the

end of the Great Depression, imposed banking

reforms intended to control speculation. The

Act limited commercial banks’ securities activi-

ties and affiliations between commercial banks

and securities firms. Weills’ alliances caused

President Bill Clinton to declare, “The Glass-

Steagall Act is no longer relevant.”

In March of 2009, Citigroup Inc qualified as a

financial holding company, among the first to

take advantage of the new Gramm-Leach-Bliley

Act, the Financial Services Modernization Act

signed by President Clinton in November 1999.

Undoubtedly, many wish Mr. Weill had

reached the conclusion that giant diversified

banks are too big, sooner, as the lack of bank

regulation and creation of “too-big-to-fail”

institutions were the proximate causes of the

2008 financial crisis.

Weill now suggests that the best way to make

money as a bank is as a “pure-play company”

that can operate consumer and proprietary

units without fear of running afoul of new

regulations. Certainly, that might improve

bank valuations. The three largest U.S. diversi-

fied banks with both commercial and invest-

ment banking operations trade well below

their peers that lack these operations.

Without consideration to the macroeconomic

impacts of breaking up the big banks, investors

in these companies surely would benefit from

splitting their operations. Citi, BofA (BAC) and

JPMorgan (JPM) trade either at or well below

tangible book value. Relative to the SPX, this

group of three, combined with Morgan Stanley

(MS) and Goldman Sachs (GS), have underper-

formed so far this year by 2%. From their Oc-

tober 2011 lows, their price performance has

been positive by 14% but has underperformed

the SPX by 7%. Meanwhile, the Large

The former chairman of Citigroup (C) — who was the architect of the 1998 mega-merger between Citicorp and Travelers Group and its subsidiary, Salomon Smith Barney — called this week for the equivalent of readoption of the Glass-Steagall Act.

Is sANDy WEIll rIghT?

Kathleen WailesOriginally Published on Seekingalpha.com

AshDesign/shutterstock.com

Thomas Pajot/shutterstock.com

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Cap Regionals and Mid-Caps are significantly

off their lows and outperforming the index for

the year.

These combined commercial banks/investment

companies need to listen actively to their inves-

tors and take action to avoid being targeted by

activist investors who will force the changes

necessary to build shareholder value.

The deck is stacked against the big banks right

now because growth is slowing, Europe’s finan-

cial health remains a giant question mark, and

investors are nervous. The issue of regulatory

reform - in an election year when nothing is

likely to be resolved - continues to loom over the

group. That, too, translates to uncertainty for

investors, who therefore loathe committing.

Michael Mayo, an analyst at CLSA LTd., re-

cently wrote that Morgan Stanley is trading at

less than half of its liquidation value and could

double if broken up. While Morgan Stanley is

relying on a strategy of shrinking some of its

operations and reducing riskier assets, Mayo

calls for stronger action. The firm’s second

quarter results bear him out, as results sig-

nificantly lagged consensus due to a reduced

top line. The 5-year historical growth rate for

Morgan Stanley is a negative 16.5% according

to Zack’s Investment Research, and the firm’s

risk level is rated above average. The shares

are trading on a price-to-book ratio of 0.4 x —

about 70% below the industry average of 1.3 x.

qingqing/shutterstock.com

Investors already have perceived the attrac-

tiveness of regional and mid-cap banks, and

have priced in to the big banks’ share prices

the risks and uncertainties under which they

labor. Managements of the underperforming

companies need to give financial engineer-

ing a serious look because they cannot grow

their way out of the current situation. Nor can

they cut their way to stellar profitability. They

should consider restructuring their capital

in ways that can be better appreciated by the

market, giving their investors the enhanced

performance they seek.

Perhaps most importantly, the managements

of these firms need to listen to investors and

clearly articulate their plans for increasing

shareholder value. Otherwise they risk becom-

ing the targets of activist investors - who aren’t

hesitating to take on the big guys. Just look at

Procter & Gamble (PG) for evidence of that.

Disclosure: I have no positions in any stocks mentioned,

and no plans to initiate any positions within the next 72

hours.

Kathleen Wailes, Senior Vice President & Chair, Financial

Communications Practice

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3. TAKE OWNErshIp OF ThE IssuE AT hAND.

Total victory in companies’ eternal struggle

with adversarial NGOs and other activist

groups rarely comes from winning the argu-

ment. Rather, it is secured when companies

make their adversaries’ issues their own. In

the digital age, that means Search Engine Op-

timization (SEO) and Marketing (SEM) strate-

gies that co-opt the visibility activists are so

desperately seeking. Target companies need to

purchase the terms associated with an activ-

ist campaign (be it a website title, a slogan, or

a twitter handle) and use those top-ranked

links to highlight their own messages about

social responsibility. Again, it’s preferable to

undertake this task before an activist salvo is

launched by anticipating the most likely areas

of exposure. The search engines are where the

bulk of that all-important cascade of audienc-

es—consumers, regulators, bloggers, plaintiffs,

journalists, etc. (alluded to above) will turn

for the real story. When a target company

takes control of those venues, it takes control

of the narrative.

The times have changed and activists have

changed right along with them. When their

credibility cedes ground to sensationalism with

stunts, prank, and hoax, companies—tradition-

ally on the defensive—have the opportunity

to assume the mantles of idealism and justice.

The companies that take advantage of that fact

are those that will position themselves to be

seen not as part of the problem; but necessary

to the solution.

Richard Levick, Esq., President and CEO of LEVICK,

represents countries and companies in the highest-stakes

global communications matters — from the Wall Street

crisis and the Gulf oil spill to Guantanamo Bay and the

Catholic Church.

L

“ In an age when social media is top dog, the pursuit of likes, shares, and re-tweets has resulted in an activist community that looks a lot more like Occupy Wall Street than the one the Ralph Nadars of the world used to define...”

Hal Singer

In this edition of the Levick Daily Interview,

Hal Singer, Managing Director and Principal

at Navigant Economics, discusses the Libor

scandal, how it is eroding public confidence in

big banks, and why it will lead to more litiga-

tion against major financial institutions. At the

same time, Mr. Singer outlines several steps

that banks can take to help restore faith in

their practices and fairness in the system.

ViSiT

libor and What’s next for Big Banks

Three tactics for turning social-media fueled haters’ antics against them.

richard s. levick, Esq.Originally Published on Fastcompany.com

ra2 studio/shutterstock.com

HOW TO reSPOnDWHen DigiTal SOcial acTiViSTS HaVe YOu in THeir crOSSHairS

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sort trade credibility for visibility. Before long,

the law of diminishing returns kicks in and the

most important audiences stop paying atten-

tion to the boy that cries wolf.

All that notwithstanding, a trend seems to be

emerging among groups that see these stunts

as “ends justify the means” propositions. In an

age when social media is top dog, the pursuit

of likes, shares, and re-tweets has resulted in

an activist community that looks a lot more

like Occupy Wall Street than the one the Ralph

Nadars of the world used to define (I, for one,

got my professional start in the Nader net-

work). This means activists are likely to grow

all the more creative, shocking, and intransient

to keep attracting key audiences of influentials

that fatigues a little more with every prank.

But it also means companies that find themselves

in these activists’ crosshairs can take advantage

of their adversaries’ strategic missteps by follow-

ing three rules for a new age in activism.

1. rEsIsT ThE urgE TO FIghT.

Like a little sibling that antagonizes an older

brother or sister, activists’ stunts seek to achieve

the dual objectives of attention and provoca-

tion. They are looking to pick a fight that results

in more coverage and more social media activ-

ity. As such, the worst thing a target company

can do is take the bait. As the people behind @

ShellIsPrepared amply demonstrated, attempts

to silence a stunt often have the opposite ef-

fect as they enhance the story’s viral allure. At

the same time, anything the company says in

response only provides fodder that turns a one-

day story into a two or three-day day saga.

Litigation—while perfectly justified in cases

where activists are using a target’s own in-

tellectual property against it (logos, slogans,

etc.)—usually won’t solve the problem either.

The speed and inter-connected nature of the

social media space means that no court order

could ever hope to close Pandora’s Box quickly

enough to have any real impact. Even if a com-

pany wins an injunction and forces one site

or social media account to close shop, it won’t

be long before another pops up to take its

place. Moreover, the courtroom win would still

translate into a Court of Public Opinion loss for

having provided adversaries undue levels of

credibility and creating the perception that the

company does indeed have something to hide.

2. sTrENgThEN mEDIA TIEs.

The more that activists rely on hoaxes, rumor,

and conjecture, the more social and traditional

media reporters need sources they can trust—

and who better to fill that role than the target

company itself. In the wake of a high-profile

hoax, targets should reach out to influential

journalists and high authority bloggers to let

them know the company stands ready to pro-

vide real-time answers to any questions and

assist in preventing misconceptions from being

communicated as fact. Even better, they should

“know ‘em before they need ‘em.” Journalists

and bloggers have been conditioned to be as

receptive as ever—and especially so if the hoax

caused a few reporters to print retractions to

erroneous stories.

Social activists are upgrading their ap-

proach to pressuring the companies they

see as less than socially responsible. Take

what’s happened to Shell this summer. As

the global energy giant moves forward with

plans to drill in the Arctic Ocean, Green-

peace, the Yes Men, and the Occupy move-

ment have teamed up to take their efforts to

another level.

First, the activist triumvirate launched a mock

“Arctic Ready” website that mirrors its genuine

Shell counterpart in almost every way, except

for the sarcastic “Let’s Hit the Beach” tagline;

a conspicuous and unsubstantiated claim that

300,000 people die every year from “climate-

change-related causes;” and the image of an

adorable arctic fox accompanied by a caption

that reads “No. You can’t run your SUV on

‘cute.’” Then, the groups staged a mock press

event gone horribly wrong that went viral on

YouTube. Finally, a fake Shell social media re-

sponse team took to Twitter under the handle

@ShellIsPrepared to urge followers not to

share the damaging content cited above, know-

ing that such a corporate censorship attempt

would only encourage followers to share more.

More than a few traditional journalists and

influential social media mavens have been

taken by the hoaxes—and while that seems to

be the activists’ goal, it is also underscores the

strategy’s fatal flaw. Activists largely rely on

third parties to give their movements teeth.

They need traditional journalists, regulators,

shareholders, plaintiffs’ attorneys, and con-

sumers to take notice before their targets are

forced to confront tangible consequences. The

problem with these underhanded tactics is that

they seek to dupe—and often embarrass—the

very allies activists need to rally. Tricks of this

Tom K!/shutterstock.com

ThE mArIssA mAyEr sAgA:WhAT yAhOO! sEEms TO hAvE lEArNED FrOm plAyBOy’s ChrIsTIE hEFNEr

“IMG_1405”, © 2005 Leon Brocard, used under a Creative Commons Attribution-ShareAlike license: http://creativecommons.org/licenses/by-sa/3.0/

I guess it’s what you’d call striking a nerve. When new Yahoo! CEO Marissa Mayer announced that her maternity leave would be a few weeks long and she’d “work throughout it,” the vociferousness of the ongoing response was itself as significant as the issues under debate. Her disclosure wasn’t even originally headlined in the media. In fact, it was well buried in the initial coverage.

Not just vociferous, it was also a sustained re-

action, in part because there are many parts to

the story. Along with maternity leave, the dia-

logue has included much broader talk about

women in the workplace. Yet the most lasting

impact of this media saga will likely be rather

narrow: namely, the repercussions for Yahoo!

itself in light of how the company has handled

the situation from the get-go.

This tale of strategic communications cannot,

however, be told outside the context of those

other broader issues. One focal point was as

much about class as gender: that Mayer can

do what she says she’s going to do because she

has the wherewithal, i.e., the money, to do it.

The lives of the rich and famous – Sarah Palin

returning to work three days after giving birth,

Heidi Klum back on the runway a month later,

etc. – infused media coverage, underscoring

that postpartum resources are available to the

elites but not to the average working Jane.

In turn, Mayer is accused of disserving women

who lack those resources or simply prefer longer

work-free leave. “Her statement sets a bad prec-

edent for other new moms and the corporations

they work for that will now expect that to be nor-

mal maternity-leave behavior,” said one woman.

“I’m really glad I don’t work for you,” blogged

another.

However unfounded such anger and anxiety

may be, Mayer’s critics are raising points that

need to be respectfully addressed. After all,

aren’t there often two laws, one for the rich

and one for the not-so-rich? Don’t we have an

obligation to articulate the socio-economic

impact of what Mayer has revealed?

In fact, a number of female executives have

done just that. What is very interesting is that

they vigorously defend and applaud Mayer

while, at the same time, they’ve taken up the

cudgel on behalf of the very women who feel

undermined by Mayer’s privileged decision.

It’s a commendable balancing act.

richard s. levick, Esq.Originally Published on Forbes.com

Weekly

“Attention devoted to this aspect of Mayer’s

life distracts us from solving the real problems

faced by parents who work tirelessly without

power, privilege, or means. It muddies the real-

ities we need to face in order to ensure prog-

ress for mothers and fathers,” wrote former

Massachusetts governor Jane Swift, the first

U.S. governor to give birth in office.

“Think about this data point: In 1960, just over

25% of American women worked; that number

is more than 70% today. And yet U.S. work-fam-

ily policies have not been dramatically updated

to reflect this stunning demographic leap,” Swift

added. Most companies persist in complying

only with minimum legal requirements for

either parent: 12 weeks of unpaid family leave

at companies with 50 or more employees.

“In Chicago, for example, one half of full-time

female workers earn less than $35,000 per year

and the work/family balance challenge for

single mothers is great,” says Christie Hefner,

former chairman and chief executive officer of

Playboy Enterprises, now executive chairman

of Canyon Ranch Enterprises. “We must create

a system where people can be productive both

as workers and as parents. That kind of change

is often driven at the top, so Mayer’s disclosure

helps put the issue out there.”

According to Hefner – the longest-serving (20

years) female CEO of any public company –

criticism of Mayer for disserving women who

need or want maternity leave is “unfair and

misleading. She is not telling anyone else what

to do, and she is certainly not trying to estab-

lish some kind of standard for the workplace.”

At the same time, Mayer’s choice underscores

a few inescapable realities. “The CEO’s job is

24/7. It’s not for everyone, nor should everyone

strive to achieve it,” says Hefner. “Those who

don’t, including people in some very responsi-

ble corporate positions, can continue to exer-

cise more flexible work schedule options.”

As Hefner sees it, the issues here are more

generational than gender-related. Her (our)

parents assumed that the father’s role was tra-

ditionally limited in terms of parenting time.

The Baby Boomers began the transformation

as more women came into the workplace but

it was the next generation that compelled a

rethinking of work roles at every level. Today,

Hefner can cite data showing a huge percent-

age of men dissatisfied with the amount of

time they get to spend with their children even

as our assumptions about work effectiveness

– that, for example, we need to spend most of

our time in the office – are long-since obsolete.

At Playboy Enterprises, Hefner provided flex

time for all employees and benefits for part-

time employees. Such liberality was a matter of

self-interest as well as principle. “I was trying

to recruit from the media and entertainment

industry,” she says. “Many of the people I hired

were younger, they needed these kinds of ar-

rangements, and they weren’t typically getting

them elsewhere.”

Not just offering competitive practical ben-

efits, Hefner was also sending a message to the

marketplace about Playboy itself, and the kind

of new leadership it had. Which brings us back

to the story behind the Mayer story: Yahoo!, a

company that has suffered a prolonged leader-

ship void; that looked irresolute in its handling

of the scandal over former CEO Scott Thomp-

son’s fake resume; and has seemed indeci-

sive in publicly communicating its vision of a

sustainable strategic direction.

Like Playboy and thousands of other compa-

nies through the years, Yahoo! must radically

change the narrative.

The buzz over Mayer is therefore heaven-sent.

The board, unanimous in its decision to hire

her, can now present an unflinching posture

– as well it should considering Mayer’s ap-

parent qualifications for the job. Indeed, any

equivocation would be unthinkable, disas-

trous. Conversely, as Hefner puts it, “they’re

now proving their leadership and showing real

risk management skills.” In exchange for the

marketplace confidence Yahoo! sorely needs,

the objections to Mayer’s prerogatives are a

fair price to pay.

There’s an even stronger sub-text. Yahoo! has

$19 billion in market capitalization. Tens of

thousands of jobs depend on what the com-

pany does. Marissa Mayer succeeded at Google

– as employee number 20 who rose through

the ranks – and she’s the best bet to succeed

at Yahoo! That means improved performance,

aggressive growth, and more benefits for

everyone, including employees who happen to

be parents. Yahoo!’s new-found resoluteness is

the tide that proverbially lifts all boats.

The only question remaining for Yahoo! is

whether or not Mayer should now say or do

something to clarify the issues under discus-

sion. Neither she nor the company apparently

think she should, and they’re right. “There

will be ample time later on to talk these issues

through with her own people at Yahoo! once the

current storm has subsided,” agrees Hefner.

If Mayer dives into this discussion, she simply

increases the chances of a damaging mistake

or misperception. Worse, it would protract

the debate and keep the story focused on her,

when, in truth, the story must instead be all

about the company she now runs. That is go-

ing to be one of the major business stories of

the coming years in any event, as this injured

giant struggles to assure its survival and regain

dominance. For all its symbolic and substance

importance, the debate over Mayer’s pregnan-

cy leave is but a preamble to a stunning busi-

ness failure or a historic business triumph.

Richard Levick, Esq., President and CEO of LEVICK, repre-

sents countries and companies in the highest-stakes global

communications matters — from the Wall Street crisis

and the Gulf oil spill to Guantanamo Bay and the Catholic

Church.

L

“ In 1960, just over 25% of American women worked; that number is more than 70% today...”

THe urgencYOF nOW.