Home > Newsletter > March 2010
March 2010 • Volume 3 • Issue 1
“We do things differently around here.” Whenever this statement comes out in the first interview with management, my antenna really goes up.
In one sense it is essential for any successful, multi-unit retail company to be perceived as a unique company with distinct and differentiated products and/or service offerings. You must fill a particular customer need in ways that no one else can. However, what the leader of a company usually means by the statement “we do things differently around here” is that they ignore best practices of their industry and think they get better results because of their homegrown policies, procedures and methods. Almost without exception, I find the attitude behind this statement is one of arrogance.
Managers who operate this way think they are smarter and more creative than everyone else. I will admit that my opinion is likely colored by the fact that, predominately, I work with companies that are underperforming and financially distressed. In many cases, the fact that these companies have ignored industry best practices is partially to blame for their current, uncomfortable situations.
The deficiencies in best practices that I see most frequently show up in the areas of financial controls and operating policies and procedures. Here are a few examples.
- Employees can be given wide latitude to make unsupervised and unwise decisions. These practices are allowed in the name of empowerment. There is no question that employees should be encouraged and empowered to meet the needs of customers, but this mandate must have its limits. For example, restaurant managers must not set their own work hours (especially when they choose not to be in the restaurant during its busiest times), create their own recipes, purchase unapproved products, have authority to approve unlimited overtime hours, create their own bonus systems, set their own opening and closing times or use unapproved vendors. You can imagine the chaos that is created when individual managers have free rein to run their restaurants without basic financial and operational accountability. It would be like allowing a football quarterback to create and run his own plays without any regard for the coaches or the playbook.
- In the opposite extreme, some operators usurp all decision-making in a system of micromanagement that stifles the morale and enthusiasm of their employees. This “worst practice” subjects the company to growing and improving at the pace of the micromanager (who is typically a workaholic). Subordinate managers feel no empowerment to improve. They become very passive and typically only understand “what to do” and never the “why” behind their instructions.
Inside the turnaround of Pilgrim’s Pride
Saving an $8-billion debt-laden company
When North America’s largest chicken producer, Pilgrim’s Pride Corporation (“Pilgrim’s”) faced an industry-wide downturn, coupled with rising commodity costs and excess capacity, the company sought counsel from the professionals of CRG Partners, including William Snyder, managing partner; Mike Darland, partner; Winston Mar, managing director; Mike Juniper and Sugi Hadiwijaya, directors; and Matt Farrell, senior consultant. Despite a variety of complex challenges, due to the management team’s early intervention, the CRG Partners team decided that Pilgrim’s could be turned around.
The results:
- Increased EBITDAR from $(300) million to an estimated $690 million in fiscal year 2010
- Over $1 billion in enterprise value created
- 100% cash-payout to all creditors
- Stock value improved from $0.15 to $9.90 per share
Pre-bankruptcy snapshot:
According to William Snyder, former Pilgrim’s chief restructuring officer (“CRO”), “the underlying economics of the poultry industry had deteriorated dramatically. In addition to the increased commodity costs of corn and soybean meal, depressed chicken prices had caused an oversupply in the market. These factors, and the company’s substantial debt, limited its ability to endure an industry downturn.”
For Pilgrim’s, the Energy Independence and Security Act of 2007 caused the price per bushel of corn to nearly triple due to the increased demand for cornmeal to produce ethanol. As its customer agreements did not contractually pass on these higher costs, an increase of this magnitude severely strained the company’s liquidity position and significantly impacted its profitability. Additionally in 2007, the acquisition of Gold Kist increased the company’s debt burden substantially, further contributing to its poor financial performance.
In early 2008, to address these issues, Pilgrim’s took several measures to mitigate the downturn, strengthen its competitive position and restore profitability. Specifically, the company began implementing measures to increase efficiencies and decrease costs, such as selling its turkey production business. Additionally, to fund operating expenses and reduce debt, in May 2008, the company completed a public offering of its common stock for approximately $177 million in net proceeds.
Despite these efforts, and after looking into various reorganization scenarios, no viable out-of-court restructuring alternatives materialized and Pilgrim’s Pride filed for bankruptcy on Dec. 1, 2008.
The solution:
Pilgrim’s retained CRG Partners in November 2008 to support the company in an operational and financial restructuring and provide leadership and guidance throughout the bankruptcy process. William Snyder was appointed CRO, and, along with the other CRG professionals, he worked closely with the management team to quickly identify and implement a series of initiatives to improve performance, maximize cost reduction initiatives and evaluate strategic alternatives.
Highlighted News
We are pleased to announce that Lisa Poulin has recently been promoted to managing partner. Ms. Poulin is a senior executive with more than 25 years of turnaround and interim management and advisory experience both in and out of court. She has been instrumental in a number of prominent, complex restructurings and has served as an advisor to numerous companies, including most recently, ASARCO, USAIP and Palmdale Hills Property LLC, et al. Ms. Poulin is the 2010 president of the Turnaround Management Association and a member of AIRA, ABI and the International Women’s Insolvency and Restructuring Confederation.
Recent Engagements
Restaurant Chain
A $310 million publicly traded restaurant chain engaged CRG Partners to perform an operational and financial assessment of the company and later retained Gene Baldwin, a partner at CRG Partners, to serve as interim CFO.
Construction
A $2 billion real estate developer that acquires and develops properties for residential and commercial builders retained CRG Partners to provide financial advice and expert testimony relating to the company’s bankruptcy proceedings.
Manufacturing
A manufacturer of private label personal care products, with over $500 million in revenue, engaged CRG Partners to improve support chain performance and develop overall supply chain management and controls.
In the News
William Snyder was quoted in The Wall Street Journal on the topic of a “quickie bankruptcy,” which requires more than a reshuffling of the capital structure in order to create sustainable improvement. More.
Events
William Snyder, a managing partner at CRG Partners, will be moderating the panel “Recent Developments in Restructuring” at The M&A Advisor’s 4th Annual Distressed Investing Conference and Turnaround Awards Gala March 21-25 in Palm Beach, FL. More.
About CRG Partners
CRG Partners is a leading provider of operational improvement and financial restructuring services specializing in creating value for the stakeholders of underperforming companies. With an international presence and offices throughout the country, CRG Partners is one of the largest advisory and interim management firms in the U.S. For more information, call (800) 656-5459 or visit www.crgpartners.com.
Disclaimer
This newsletter is intended for general informational purposes only. It is intended to stimulate thought and discussion but does not represent official forward-looking statements or professional advice of any kind.