Over the past 10 years, as global markets have grown increasingly competitive, the world has seen record numbers of companies dramatically restructure their assets, operations, and capital structures. For these companies, restructuring is a means to improve financial performance, exploit new strategic opportunities, and gain credibility with the capital market. When the competitive stakes are high, restructuring can make the difference in whether a company survives or dies.
Each day brings new announcements of corporate bankruptcy reorganizations, equity spin-offs, tracking stock issues, divestitures, buyouts, mergers, and corporate cost-cutting/downsizing programs. Many thousands of other companies are affected by this activity as competitors, customers, or suppliers of companies that are restructured. Once considered a rare event, restructuring has become an important part of everyday business practice. In this new competitive landscape, every manager can benefit from understanding how corporate restructuring can be used to advance the firm's business goals, gain competitive advantage, and create value for shareholders.
Despite the expanding impact and reach of corporate restructuring, however, much of what transpires in a restructuring is typically hidden from public view. As a result, many of those directly affected by a restructuring—managers, directors, employees, and investors—may have little in the way of experience or training to prepare them for the critical decisions and challenges they will face.
This book bridges that gap, by rigorously analyzing the actual decision-making process that was followed inside 13 major company restructurings. Each of these situations is presented as a case study, letting the reader view the restructuring process through the eyes of management. The case studies were developed over an eight-year period for a course that I teach at HarvardBusinessSchool called "Creating Value through Corporate Restructuring." Drawing on extensive interviews with managers, consultants, bankers, attorneys, and others directly involved in these cases, this book provides readers with a unique inside perspective on corporate restructuring that has never before been available to the general public. The cases include some of the most innovative and controversial restructurings of the past decade. The situations have been picked to represent a wide range of restructuring techniques and strategies, and an equally wide range of management problems and challenges.
Each case study presents readers with the facts and data on which management had to rely in making its own decisions. These decisions include choosing whether to restructure, as well as how to restructure when several alternative restructuring options are available. Equally important are the many decisions that have to be made when implementing a restructuring strategy. (For example, in a corporate downsizing program, over what time frame should employees be laid off? In a distressed, debt restructuring, how much of the firm's equity should be given to creditors?) By providing readers with a specific decision context, the cases in this book are designed to stimulate discussion of how a corporate restructuring actually gets done.
The case studies are informed by my own scholarly research on corporate restructuring. They also draw on insights that I have gained over the years while consulting to companies that have been involved in various kinds of restructuring. This has included teaching my case studies to corporate executives who are themselves grappling with the same difficult issues and challenges highlighted in this book. In the course of these interactions I realized there is widespread interest among general managers and business practitioners in understanding what corporate restructuring implies for them in real-world, practical terms. With this in mind, I wrote this book with the goal of helping managers make better decisions and choices when confronted with a restructuring situation.
This book is also intended to appeal to business students who wish to learn more about the practical challenges posed by corporate restructuring. As a textbook, it can be useful in teaching students about the difficult issues and choices that companies face when unexpectedly large changes in their economic fortunes make it necessary to restructure. More generally, the book offers practical guidance about corporate deal making, and how a deal should be structured and negotiated to create maximum value. To get the most out of the case studies, students should have an understanding of basic accounting and financial analysis. Some familiarity with discounted cash flow valuation methods is also helpful; Appendix В of this book provides a technical overview of these methods. To provide a broader context for interpreting the cases, each of the three main sections of this book—focusing on the restructuring of creditors', shareholders', and employees' claims, respectively—contains an introductory chapter that summarizes relevant academic research in the area. In a separate instructor's manual, I provide recommended classroom teaching plans for all of the cases.
I owe many thanks to the people who have commented on the case studies in this book, or otherwise influenced how I study and teach the subject of corporate restructuring: Jay Alix, Ed Altman (who also encouraged me to work on this book), Bob Bruner, Dwight Crane, Harry DeAngelo, Linda DeAngelo, Steve Fenster, Martin Fridson, Bill Fruhan, Max Holmes, Michael Jensen, Paul Kazarian, Carl Kester, Jay Light, Lynn LoPucki, Ron Masulis, James McKinney, Harvey Miller, Ron Moore, Arthur Newman, Andre Perold, Tom Piper, Hank Reiling, Richard Ruback, Sanford Sigoloff, Peter Tufano, Elizabeth Warren, Jay Westbrook, and Karen Wruck. I owe a huge debt of gratitude to the many executives and practitioners who candidly spoke to me about their companies and experiences. They are too many to list by name, but their contributions were profound and are deeply appreciated. The case studies have also benefited tremendously from the insightful comments that I have received from my students over the years. A number of people were key collaborators in researching and writing these cases, including Roy Burstin, Jose Camacho, Cedric Escalle, Perry Fagan, Fritz Foley, Samuel Karam, Matthias Vogt, and, especially, Jeremy Cott. Superb editorial, administrative, and research support was provided by Dale Abramson, Chris Allen, Audrey Barrett, Sarah Eriksen, Jennifer MacDonald, Tracey Perriera, and Sarah Woolverton. The Harvard Business School Division of Research generously funded this research. Thanks go to Mary Daniello, for handling the production on this book. I owe a special thanks to Pamela van Giessen, my editor at Wiley, for expertly guiding me through this process. Finally, my wife Susan was a constant source of support and encouragement during the many years that the materials in this book were being developed; for this, as for so much else, I am ever grateful.
Stuart C. Gilson
Boston, Massachusetts June 2001
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528 pages. Praise for Creating Value through Corporate Restructuring
"A helpful reference guide for managers facing the complex operational and financial issues raised in today’s competitive environment. Gilson’s case studies provide a real-world context against which corporate leaders can plan their restructuring strategies."–Arthur B. Newman, Senior Managing Director, The Blackstone Group
"Stuart Gilson’s analytical case studies have demystified the battle of enterprise valuations in financial distress and buyout situations. It is a must-read for understanding the restructuring and buyout arena. I highly recommend this book."–Harvey R. Miller, Senior Partner and Chair of the Business, Finance, and Restructuring Department, Weil, Gotshal & Manges LLP
"The economically pivotal process has never before received such a rigorous and well-rounded treatment. Gilson goes far beyond the legal framework of bankruptcy resolution to show how industry-specific factors, conflicting creditor claims, and negotiating stratagems all determine a financially strained company’s fate. Readers of Creating Value through Corporate Restructuring will gain wisdom that could otherwise be obtained only through many years of direct experience in the field."–Martin S. Fridson, Chief High-Yield Strategist, Merrill Lynch & Co., Inc.
"Creating Value through Corporate Restructuring ably describes the importance and difficulty of designing, executing, and marketing restructuring strategies. The case study format offers the reader an inside look at the real world of corporate restructuring. With this book, Gilson provides a useful blueprint for tackling restructuring challenges."–Jay Alix, Founder and Principal, Jay Alix & Associates
"Stuart Gilson has created a much-needed book for practitioners and professors alike. It should be required reading for MBA and PhD students who need to understand corporate reorganization and crisis management."–Sanford Sigoloff, Chairman, President, and CEO, Sigoloff & Associates, Inc.ISBN:0471405590