Archive by topic: Distressed investing

Harry and David: leadership requirements

February 20th, 2011

After I published the post below, it occurred to me that you might be interested in a prior post about what leadership qualities are required in turnaround  situations.  Here is a link.

Harry and David: Interim CEO named

February 20th, 2011

Someone submitted a comment about my February 16th post in which he pointed out that Kay Hong has been appointed Interim CEO of Harry and David and asked whether I know her and whether her appointment is a good thing.

I haven’t met Kay, but I do know that Harry and David is at a crossroads that definitely requires someone with experience in distressed situations and someone who is strong not only financially but also operationally.

Some comments  submitted in response to the Harry and David story in  the Oregonian today confirmed my suspicions about what is going on operationally at the company; e.g., complaints about poor product, poor customer service, poor internal systems, and lack of adequate inventory control.  All of those will need attention if the company is to prosper.

Most people here in Oregon are partial to our home-grown companies and are pulling for Harry and David to survive.  Many jobs and the welfare of the area will be affected by the outcome.

Did e-readers kill Borders?

February 18th, 2011

It’s easy to blame e-readers and associated technological changes for Borders’ predicament, but they are merely the symptoms and not the disease.

When companies face the double whammy of game-changing technology and a sagging economy, they simply must have a sound strategy and consistent, capable, visionary leadership. Since 2005, however, Borders has had 4 different CEO’s.  How could the company possibly develop or effectively execute a company-saving strategy while there was a revolving door at the entrance to the executive suite?

Harry and David: From my interview this morning….

February 16th, 2011

This morning, I was a guest on Bill  Meyer’s radio talk show.  The topic?  Harry and David and the problems facing the company.  You can download the podcast here.

Bill asked some interesting questions, some of which I’ll be addressing in future posts; e.g., why would a distressed company prefer to avoid bankruptcy when in bankruptcy they can shed leases and have other protection? How can you have higher profits with lower revenues?

In the meantime:  During the show, I promised to post some key financial  statistics for Harry and David from 2006 through 2010.  (Their fiscal year-end is approximately the end of June.)  Here they are:

Year Revenue Net Income
2006 $524,384,000 ($9,713,000)
2007 $561,017,000 $32,001,000
2008 $545,064,000 $4,608,000
2009 $489,596,000 ($20,179,000)
2010 $426,774,000 ($39,228,000)

Distressed Investing + Leadership

January 25th, 2011

Wednesday, I am leaving for the Distressed Investing Conference of the Turnaround Management Association and am eager to see whether presenters spend much time discussing  leadership considerations.

Many investments in distressed companies  fail because the investors (most of them private equity firms) pay too little attention to selecting and managing company leadership, but the last time I attended this conference, 2009, there was only one session (really, it was only one panelist) who highlighted this very important issue.

Mike Heisley discussed the fact that distressed companies require a leader with traits that are very different from those required to lead  a “healthy” company.  He was exactly right.  Click here to view my post from that event.

Technology can be a game changer.

June 1st, 2010

Last week, The Deal quoted me as saying that technology just might give Borders a second lease on life.  Links to the article are available only to The Deal subscribers, so let me explain.

As you may know, financier Bennett LeBow recently invested $25 million in Borders and became its Chairman. That $25 million infusion will buy Borders some time, and a combination of savvy marketing and the savvy use of technology may dramatically improve the company’s prospects.

  • Technology has transformed the marketing battlefield.
  • Although Borders is late to the digital distribution game, the company has a key, not-to-be-discounted asset made valuable through the wonders of current technology: The list of 30-million email addresses they have accumulated through their “free” Borders’ Rewards program.
  • That list is a springboard that will allow Borders to promote its new digital offerings rapidly to a massive, already existing database of customers.
  • Current technology will allow them not only to reach those customers but also to know the book-buying  preferences of those customers.  In addition, Borders will be able to send personalize emailed “pitches” to the 30 million—right away—without delay and at a relatively low cost per customer.
  • As a result, Borders will likely attract digital book buyers quickly at a low cost-per-customer and per-purchase.

I, personally, would not invest in Borders now, but it’s premature to count them out.

ESOP: things to consider

May 18th, 2010

Am quoted today by Nancy Mann Jackson at on the topic of ESOPs. My comments to her were based primarily on my experiences turning around two ESOPs. In one of those, the employees were given the “opportunity” to invest.


May 8th, 2010

I am not a Blockbuster expert and don’t know any of the players personally, but the situation has caught my attention.

First, Gregory Meyer, who is challenging the incumbent board member, points to stock performance during the reign of the current CEO and the board member Meyer opposes. (Background: According to reputable news sources, Meyer wrote a letter to the board in 2005 urging them to focus on distribution through kiosks; no one from Blockbuster responded, and, as we all know, they also did not follow his advice. In addition, Meyer owns more stock than his opponent.)

Since Jim Keyes became CEO and Board Chair in July 2007, Blockbuster’s stock has plummeted from approximately $4.00 per share to $ .37.

Keyes publicly opposes Meyer’s board bid. Is this appropriate? I think not.

Particularly in a publicly-held company, a key responsibility of the board is to hold the CEO accountable. Although it is common practice that the CEO and Chair are one and the same, that situation creates inherent conflicts of interest.

It is noteworthy—and inappropriate, in my view—that Blockbuster’s CEO is taking a position on who should be elected to the board; i.e., to whom he should report.

I am back + Blockbuster

May 6th, 2010

After three back-to-back turnaround gigs which started last July and kept me beyond busy, I now have some time to return to blogging. I have a backlog of topics, so…….brace yourself…..

In the meantime, if you aren’t already aware of what is happening at Blockbuster, you may want to start following the story.  (An unhappy shareholder is challenging the board and getting lots of press in the process; e.g., this from Slate.) Maria Woehr, a reporter for The Deal, quotes me in her story today. If you want to contact Maria, her Twitter handle is @newsgirlmw.

More later……

Renee’s Rule™: Two sick companies don’t make a healthy one.

August 4th, 2009

When revenues decline, and profits are non-existent, companies often believe that if they buy or merge with another company, the increased revenues will solve their profitability problems.  In my experience, however, these “solutions” often exacerbate the problems.

To be successful, all companies need the essentials:

  • A capable leader
  • A carefully conceived plan
  • A system for ensuring accountability

When these pieces are missing, a joining of two financially and operationally troubled companies is destined to fail.

An example from one of my clients:

  • Company A was in an FDA-regulated industry
  • The industry was experiencing both intense pricing pressure and consolidation.
  • Company A, with multiple manufacturing and distribution facilities, was not only losing money but was also experiencing both product contamination and delivery problems.
  • Company A, which was bleeding cash, bought Company B, which was also bleeding cash.
  • Neither company had any of the three essentials listed above.
  • After the acquisition, the expected “economies of scale” did not materialize; costs for the combined entity actually increased as a percent of revenues.
  • The already stressed delivery system was now even more stressed.
  • Expected  revenues did not materialize because frustrated customers switched to other suppliers.
  • Chaos ensued.

We were able to save the company, but it was a close call…..a very close call…..

Two wrongs don’t make a right, and two sick companies do not make a healthy one.

Distressed Investing Conference #3

January 27th, 2009

During one of the most interesting panels of the conference, Mike Heisley, a self-made billionaire according to Forbes, made an incredibly important point about the management skills required of a CEO running a distressed businesses.

He said that there is a huge difference between “managing” and “managing a distressed business” and that the latter requires a

  • Different psychology
  • Different temperament
  • Different experience

I could not agree more. Why?

  • In my experience, leading a turnaround requires being a combination of general on the battlefield, teacher, psychologist, negotiator and camp counselor. Being able to make on-the-spot decisions and to “rally the troops” may spell the difference between success and failure.
  • Decision-making time lines are dramatically compressed. Decisions that would take weeks, months or years in a “normal” company may have to be made in minutes, hours or weeks in a troubled company. There simply is no time to do otherwise.
  • The patient is in the emergency room, so saving the company takes priority over everything else other than legal and ethical considerations–because most stakeholders will be worse off if the company folds. As a result, the turnaround CEO has to make tough calls–quickly.

I’ve seen managers who think that they have “turned around” a division fail spectacularly when they find themselves running troubled companies because

  • They were used to having effective systems and procedures in place rather than having to create them
  • They were used to being able to have HR recruit the creme de la creme at competitive salaries rather than having to work with most of the people who were already in place, regardless of their skill sets
  • They didn’t have to worry about whether they would be able to pay payroll or vendors–They knew that cash would be available
  • They did not have to worry about being placed on credit hold or C.O.D. and facing the possibility of not having materials necessary to production

Do you remember the opening scene in Saving Private Ryan? That’s exactly how it feels in the early days of a “real” turnaround, but without the physical danger (although I have had nails put into tires and had an employee try to attack me physically). If you don’t remember the scene, rent the movie. It will be an eye-opener.

Firms and individuals investing in distressed companies will be well served by following Heisley’s admonition.

Distressed Investing Conference #2

January 25th, 2009

One of the most interesting–and telling–observations at the conference came from David Shapiro, KPS Capital Partners, who said that the one investment of theirs that is doing well offers “adult incontinence” products.

Not surprising, is it? After all, this product is offered to a real market with a real need. Given the current state of the economy, those are the only kinds of products and services likely to succeed. Will we finally get back to basics?

Distressed Investing Conference #1

January 20th, 2009

Tomorrow, I’ll be leaving for the TMA’s (Turnaround Management Association’s) Distressed Investing Conference.

When I first joined TMA approximately 15 years ago, the members were mostly other turnaround experts, like me, and the sessions focused primarily on turnaround issues. The sessions were filled with practical advice for people who actually turned around troubled companies. Not only did I always leave with valuable tips, but I also identified people who might help my clients survive. For example, Biff Rutenberg, Atlas Partners, was a panelist at one of the first conferences I attended. A couple of years later, when a client with over 60 locations needed to shed some properties and leases, Atlas Partners was a great help to them.

Today, TMA feels very different to me. Both the industry and the organization have matured. In addition to turnaround experts, the organization now has many lenders, attorneys, accountants, and other service providers, and the emergence of the mega-turnaround firms has changed the landscape.

The changes have expanded the spectrum of resources available to members; however, the Turnaround Management Association today might more appropriately be called the “Restructuring Management Association” because so much of the educational content focuses on transactions and Chapter 11 rather than on the nuts and bolts of actually fixing distressed companies.

I am looking forward to the case studies which promise “operational” content and to seeing people I haven’t seen in years…..