Rocky Road

CFOs could find their turnaround talents tested by a wave of corporate restructurings.
Tim BurkeMarch 3, 2008

Forget switching to “plan B.” Many European CFOs may need to prepare plans C and D as an impending rush of corporate restructurings is expected to test their turnaround skills. (See “Trouble Ahead” at the end of this article.)

With highly geared companies finding it hard to refinance debt, finance chiefs will have to consider alternative ways of getting their companies through tougher times, with rights issues, divestments or other forms of restructuring to streamline the company for survival. Whether the current crop of CFOs possesses the right skills to manage the process is open to debate. In January, a poll of members of the UK’s Society of Turnaround Professionals found that only 4% believe that British managers are equipped to deal with an economic downturn.

“The question for finance directors of leveraged companies will be, ‘Can I raise alternative sources of capital to pay down debt and fund more projects?’ If not, can you batten down the hatches and run on what you’ve got to see through the next year or 18 months?” says Matthew Prest, head of the London restructuring team at Close Brothers Corporate Finance. “A lot of CFOs will not have faced a situation like that before — their experiences are of a world where banks fell over themselves to lend money. Those who have been through the restructuring process and know how to run it will be highly prized assets.”

That includes CFOs such as Pascal Bouchiat, finance chief of French chemicals group Rhodia since 2005 and a senior member of the finance team for the past ten years. In 2003, the company began a turnaround process after over-ambitious expansion and an industry downturn hit it hard. In 2006, it delivered its first profit — €62m, on €4.8 billion of sales — for six years. Although the credit crunch poses some unique challenges, Rhodia’s road to recovery — offloading subsidiaries, cutting costs and streamlining support functions — applies to many distressed companies today.

Naturally, the restructuring called for certain financial know how. As Bouchiat admits, “There’s no way to achieve a recovery programme without considering the company’s financing aspects.” But he adds that it also required particular skills in leadership and communication — leadership in terms of ensuring the group’s finance team was behind the plan and communication with a wide range of external investors.

Despite the tribulations, there are benefits beyond simple survival for companies. In November, a survey by news website Debtwire, law firm Cadwalader, Wickersham & Taft and investment bank Rothschild questioned CEOs and CFOs of six European companies that had restructured during the past year. Many said their company’s relationship with banks improved after restructuring because of the financiers’ better understanding of its business. After all, what doesn’t kill you makes you stronger.

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