Restructure and revive

June 2013 | EXPERT BRIEFING | BANKRUPTCY & RESTRUCTURING

financierworldwide.com

When a company makes the decision to restructure, for whatever reason, it must ensure this is undertaken in a holistic way with an integrated team. Otherwise, there could be a weak link that could be exploited by the market and undermine investor or customer confidence. It is vital to take all steps in concert to revive performance, seize new business opportunities and maintain shareholder value.

But a lot can go wrong. A well-planned strategy, based on a sound understanding of the context in which the company is operating, is therefore essential to assess and mitigate the level of risk. An integrated team of company officials, with specialist knowledge and authority to make decisions, supplemented by legal and strategic advisers, is also key to a smooth transition. This fully aligned team can function as a control room, and can navigate the company through the process.

Naturally, certain legal and regulatory aspects will need to be investigated: will a sale of assets give rise to an EU merger filing and what are the risks of a lengthy investigation? Has the company received state aid and, if so, how could that affect the restructuring? If listed on an exchange, the company will need to be clear on its obligations to shareholders of listed equity and debt as well as those holding private (senior) debt who are deemed to be ‘private side’ and therefore insiders. Legal advice can be supplemented by input from strategic advisers working with the internal team, pooling experience to decide on an internal and external communications strategy.

Regardless of the exact shape of a restructuring, a number of other commercial risks need to be assessed. The immediate commercial issues of a ‘distressed’ situation can be life-threatening to an organisation as credit insurers withdraw cover to a company’s supply chain, the supply chain pulls in its terms of trade from 90 days to cash on delivery, fundamentally destroying a business’s working capital position. Failure to get the social and communication strategies right can delay deals and destroy economic value, resulting in losses of millions of euros. Confidential negotiations may be leaked to the media by disgruntled internal stakeholders, and political interference can emerge at any time with serious consequences for the business value. In the last two years alone, there has been increasing radicalisation of employee union actions – boss-napping, hunger strikes, violence. Social unrest at Arcelor Mittal (2012-13) and Ford Genk (2012) are but two examples.

Preparing your battle plan: what can be done to protect the business as it undergoes its metamorphosis?

Start planning for alternative scenarios to spell out to the business what might happen, what to expect and how to respond. In practical terms, the first thing would be to conduct a risk assessment exercise with senior management to identify every conceivable threat arising from a downsizing, sale or acquisition to prioritise and score risks and allocate crisis-handling teams.

Understanding the context and specific background allows for a bespoke strategy that has taken the risk assessment into account, including alternative fallback positions to cover all eventualities. Companies can then rely on their specialist in-house team, boosted by advisers with clearly defined roles and responsibilities, assigned with tasks to respond to the identified risks in a timely and ordered fashion.

Timing internal and external communication

Taking control of all external communications is key to minimising the impact on corporate reputation. Create a communications group which is structured and mandated to make fast decisions in rebuttal to market rumours as well as agree a more proactive communications program. Make sure to plan for any potential press leaks and have an agreed response and lead spokesperson who is solely authorised to speak to the media. Devise appropriate communications materials for different audiences: employees, clients, suppliers, business partners, political community and regulatory authorities, lenders and credit insurers.

The risk of political interference is high and could endanger the restructuring plan. The best way to try to avoid this is usually to keep political stakeholders informed throughout the process – on your terms and according to your timetable. Political outreach in support of the restructuring strategy will be particularly important when redundancies or de-localisations are on the table and in cases where state aid support has been previously granted to the company. Likewise, if the sale of assets is under consideration and the potential acquirer is an institutional or non-EU investor.

Reassuring your top customers and suppliers through personal contact is of paramount importance to ensure continuity of the business – involve other advisers in these conversations if required.

In the drive to appease external stakeholders, communication with the ‘home team’ is often overlooked. Through employee communications, you can ensure that your internal audiences understand and ‘buy in’ to the plan, ultimately avoiding protest actions which could disrupt operations and put reputation at stake. In larger companies where employees are represented through a workers council, take care to respect all legal requirements and delays for communication. Finally, throughout the restructuring process the company will need to manage the flow of communication with the various stakeholders carefully to a finely-choreographed timetable that takes into account discussions with creditors (which could leak to the media) and the sale process timelines of any divestment activities. Any communications program will respect the reporting requirement of the company to holders of publicly listed equity and debt, private debt as well as the timetabling of EU approvals for divestment.

Where these are also affected by local or EU employment practices and law, timetables need to be managed very carefully and the prospect of potential leakage of news considered.

Combine this with ongoing media monitoring and fielding of incoming media enquiries, to help ensure the case is appropriately reported in the press and to rebut any misreporting swiftly.

When the hurly burly’s done

Once the restructuring is completed, take stock of the aspects that were the most successful and achieved the best outcomes as well as those that did not work so well: this could be a useful corporate memory in case the company ever needs to go down the restructuring route again.

Claire Harris and Mónica Cristina are senior directors at FTI Consulting (Brussels). Ms Harris can be contacted on +322 289 09 44 or by email: claire.harris@fticonsulting.com. Ms Cristina can be contacted on +322 289 09 52 or by email: monica.cristina@fticonsulting.com.

Claire Harris and Mónica Cristina

FTI Consulting (Brussels)