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.