There are three critical hurdles or challenges that
management faces in any restructuring program:
1. Design. What type of restructuring is appropriate for
dealing with the specific challenge, problem, or opportunity that the company
faces?
2. Execution. How should the restructuring process be
managed and the many barriers to restructuring overcome so that as much value
is created as possible?
3. Marketing. How should the restructuring be explained and
portrayed to investors so that value created inside the company is fully
credited to its stock price?
Failure to address any one of these challenges can cause the
restructuring to fail.
Having a Business Purpose
Restructuring is more likely to be successful when managers
first understand the fundamental business/strategic problem or opportunity that
their company faces. At Humana Inc., which jointly operated a hospital business
and a health insurance business, management decided to split the businesses
apart through a corporate spin-off because it realized the businesses were
strategically incompatible—the customers of one business were competitors with
the other. Alternative restructuring options that were considered, including
issuing tracking stock, doing a leveraged buyout, or repurchasing shares, would
not have solved this underlying business problem.
Chase Manhattan Bank and Chemical Bank used their merger as
an opportunity to both reduce operating costs and achieve an important
strategic objective. Combining the two banks created opportunities to eliminate
overlaps in such areas as back-office staff, branch offices, and computing
infrastructure. Management of both banks also believed that larger and more
diversified financial institutions would increasingly have a comparative
advantage in attracting new business from corporate and retail customers. The
merger was therefore also viewed as a vehicle for increasing top-line revenue
growth. Internal cost cutting alone would not have enabled either bank to
achieve this second goal.
