Restructuring, Turnarounds & Schemes of Arrangement

Course Overview:

Restructuring covers a broad range of situations which many firms in Europe will experience at some stage. There are often occasions when the group’s financial performance goes unrewarded by the markets and the sum-of-the parts is greater than the whole (the classic Racal /Vodafone demerger) and this leads to the need to consider a restructuring in order to enhance shareholder value. On other occasions, a restructuring is necessitated by strategic issues (BA/ Go). Thirdly, restructurings take place because a group is in financial difficulties and the implementation of the transaction is intended to achieve a “turnaround” in the group’s fortunes.

Restructuring (or reorganisation – the terms are often used interchangeably) can be effected in a wide variety of ways: both formally, in court, or less formally, out-of-court. Additionally there are a wide range of methods in which this can be effected but in Europe, unlike the USA, much of the restructuring is done informally.

One of the tools which is assuming increasing importance not only in the UK but also in Europe and further afield is the scheme of arrangement procedure under the UK Companies Act. Despite this, schemes are been used increasingly by non-UK firms to restructure firms in Germany (Rodenstock, Telecolumbus, PrimaCom), Spain (Cortefiel, Metrovacesa, Re La Seda de Barcelona), Italy (Seat), Holland / Bulgaria (Vivacom) and even the Gulf (GIC) and the recent landmark Vietnam (Vinashin) case.

Although some jurisdictions have sought to implement similar legislation (e.g. Spain), the lack of precedents coupled with the enormous flexibility offered by schemes, makes it likely that, for the medium term, UK schemes will retain their attractions to foreign firms.

This programme reviews the key issues of schemes and their use and application together with the problem areas (for example, class and value).

Last, the programme, covers restructuring in a turnaround situation, as that often involves issues not relevant in happier circumstances. In particular it provides a template of the four key issues to consider.

Course Content:

Restructuring

• Restructuring vs reorganisations
• Ten tips for restructuring professionals
• Reasons for restructuring &/or reorganizations
  • Financial / operational difficulties
  • M&A
  • Unlock or enhance value
  • Other reasons – strategic, regulatory, tax, efficiency
• Internal reorganisations – specific issues
  • The valuation conundrum (review of relevant cases law)

Demergers

• Demergers generally – six good reasons for demerging
  • Review of selected examples (Cookson, Punch Taverns, Anglo American, BT, BAT)
• Types of demergers & demerger procedures
  • Direct dividend
  • Indirect or three-cornered demerger
  • Indirect or three-cornered reduction of capital
  • Scheme of arrangement
• Liquidation scheme under §110 of the Insolvency Act (UK only)
  • Overview – use and application
  • Typical structure
  • Pros & cons
• Factors affecting choice of demerger method & structure

Restructuring the equity

• What are the options?
• Spin-offs vs split –off vs carve-outs
• Review of the epic Vodafone / Racal demerger – how 2 + 2 = 6!
• Specific situations
  • IPO
  • Sale of subsidiary
• Using schemes for public take-overs
  • Take-overs & squeeze-out
  • Dealing with foreign shareholders
• Key considerations
  • How much should be sold & how much kept
  • How much new vs old money
  • What about the debt (BT / O2)

Schemes of arrangement generally

• What is a scheme of arrangement?
• Use and application of schemes
  • Restructuring & cram-downs
  • Reorganisations
  • M&A
  • Demergers
  • Squeeze-outs / dealing with minorities
  • Return of capital
  • Aspects affecting loans – amend & extend (Barcelona de Seda, Cortefiel)
• Requirements for schemes & problem areas
  • Who can implement a scheme?
  • What’s in a class?
  • The voting thresholds
  • Fair treatment and the lessons from the Assenagon case
  • Lessons from IMO Carwash (Bluebrook) case re valuation

Schemes of arrangement – International application (foreign companies)

• The international dimension – recognition of Schemes for foreign companies
• Use of schemes for non UK companies
• Recent examples
  • German Schemes – Rodenstock, Telecolumbus, PrimaCom
  • Vivacom / Bulgarian Telecom Scheme (Holland / Bulgaria)
  • Other cases – Seat (Italy), GIC (Kuwait)
  • Vinashin and why it may be a game changer

Turnarounds

• The 3 phases of decline and fall
• Smoke signals of declining performance
• Warning signs of financial distress
• Red alert – signs of a financial crisis
• There are only 3 options in financial distress! Fix, Sell, Shut
• A template for managing a crisis: the 4 key issues
• Key issues for main players (especially when the firm enters the “zone of insolvency’)
  • Existing management – should they stay or go?
  • New management – are they required and what to look for?
  • What about secured lenders – any more support?
  • What about the other creditors?
• Who else has leverage & how to handle them?
• What about a chief restructuring officer – help or hindrance?
• What’s the cash burn-rate?