Target’s Indian operation: How does a company respond to a rumor half a world away?

Target Corp. (NYSE:TGT) issued an unusual and strongly worded statement denying an Indian newspaper report that it plans to sell its India technology unit to a software company. Target’s strong and rapid denial highlights the challenges a global company faces in dealing with rumors 12 times zones and half a world away.

India’s Deccan Herald newspaper, citing unnamed sources, published a story Sunday saying that Indian software giant Wipro “is believed to have agreed to pay $60 million” for Target’s overseas software operations center in a transaction “likely to be announced this week.” The news report went on to provide financial details and names other suitors for the operation. A similar rumor had been reported several months earlier in another newspaper, according to on-line chats commenting on the story.

Following Target’s 8 percent cut in its Minneapolis-based marketing organization last fall, the rumor of a pending sale of its Indian unit likely created significant uncertainty with its Indian employees. Working over the weekend, Target wasted no time in responding and issued a press release at 2:15 a.m. Monday morning Minnesota time, ensuring that it would hit Bangalore during business hours. Quoting Tim Baer, Target executive vice president and general counsel, in the press release, Target said it “emphatically refutes the irresponsible rumor that it is engaged in any discussions, or has any plans, to sell its India operations. We do not know the source of this ridiculous speculation but we can absolutely reaffirm that it is unequivocally not true.”

The press release went on to describe the role of its Indian operation: “Target continues to more deeply integrate the work of its Bangalore teams with its U.S.-based teams, bringing the teams, sites and work even closer together. These activities and strategic direction demonstrate our commitment to our operations in Target India and are completely counter to this persistent, inaccurate rumor.”

It went on to quote Beth Jacob, EVP and chief information officer of Target: “Our captive center in Bangalore continues to be an important part of our long-term strategy and is highly integrated with our work and team in Minneapolis.”

Target spokespeople refused to comment on the release or to speak on the record for this story. Having spent 25 years in corporate communications and investor relations, the saga is interesting to me for several reasons.

Rumors are a pervasive lubricant in the stock market. They excite traders, move stocks, generate news and frustrate managements.  Some rumors are true and some are pure fiction.  Practitioners of the art have as many motives as there are rumors and it can be nearly impossible to trace the source.  Sometimes a rumor is started simply to get a transaction going, to put a company in play or to juice the stock (up or down) of one or more players named.  When the rumor is being spread in another country, with its own laws, regulations, culture and media practices, it gets complicated indeed to try to manage.

For public companies faced with rumors, the decision on what to do is never easy. The first rule of corporate communicators is never comment on rumors of pending deals if you can help it, because you may have to “update” the market if what is not true today turns out to be true tomorrow. A comment also can set a threshold precedent for what companies will and will not comment on.

The practice of “No Comment” goes back to a Supreme Court case, Basic v. Levinsonthat held a company liable for fraud on the market when its chairman, responding to rumors, denied that it was in merger discussions. The next day, the company announced completion of a merger agreement. If the chairman had simply refused to comment on rumors, the company would have escaped any penalties.

When Target chose to issue its statement, quoting the general counsel, they presumably were trying to drive a stake through the heart of the rumor and kill it. By quoting the head of the IT operation, they presumably hope to reassure anxious Indian employees.

So the next time you see a company commenting on a market rumor, sit up and take notice.  They don’t do it that often.

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