A Debtors Reorganization Plan Is Confirmed Now the Real Work Begins

<p>Imagine the following scenario: A debtor develops a
reorganization plan that contemplates the merger of its operations
with another operating entity. It successfully attracts new capital
from investors and executes the appropriate investment agreements. It
negotiates a reorganization plan that's acceptable to all creditor
constituencies. The debtor complies with all required provisions of the
Bankruptcy Code and presents all requisite documentation to the
bankruptcy court, and the judge enters a confirmation order. After
months of hard work that included nights and weekends, extensive
travel and difficult negotiations with creditors and other
constituents, it's finally time to exhale, relax and perhaps celebrate
the many challenging tasks completed – the confirmation order,
merger and successful reorganization. Isn't it? </p><p>Not so fast. There
is still a significant amount of work to complete. It is actually time
to take a quick breather and recognize that the restructuring can only
be deemed a success when the integration of the two companies is
completed and the goals, as described in the reorganization plan, are
achieved. </p><p>A financial or restructuring advisor can play a vital role
in the integration process, ranging from functioning as a project
manager for the entire integration, assisting individual integration
teams where the advisor has a specific expertise, or acting as interim
management as the integration plan is completed. When advising clients
that are contemplating mergers, the financial advisor should be aware
of the following merger and merger integration success factors:
</p><p>• <i>Select Leadership Quickly</i>. The selection and
communication of the senior management team including the CEO, those
who report directly to the CEO and other senior-level corporate
officers will most likely be the first high-profile public decision
made by the new organization. The selection of the senior management
team will eliminate ambiguity, uncertainty and speculation throughout
both organizations. The decisions, when made quickly and decisively,
will demonstrate internally and externally that the new organization is
actively moving forward with speed and conviction. Moreover, the
expedient selection of the senior management team in the early stages
of the merger will also allow ample time to analyze and ultimately
choose the middle-management team that will be critical in
effectuating the merger integration plan. </p><p>• <i>Plan the
Integration as Early as Possible</i>. The integration of two
organizations is a complex, labor-intensive undertaking that includes
many related and interdependent decisions. It requires significant
planning and coordination horizontally across all disciplines, as well
as vertically through various levels of the organization. The work
performed during the pre-merger due diligence process should become
the foundation of the merger integration process and should be
leveraged when a comprehensive merger integration plan is developed. The
integration plan will take significant time to complete; therefore,
beginning as early as possible is a critical element to success.

</p><p>• <i>Build a Strong Integration Structure</i>. The merger
integration effort should be organized in such a way that provides
adequate oversight by senior management or a Steering Committee. A
simple but effective structure for managing the overall integration
process is illustrated in the chart below. </p><p>An effective steering
committee provides overall strategic direction, resolves significant
differences or disagreements, makes critical "go"/"no
go" decisions and facilitates communication. While fulfilling these
responsibilities, the steering committee should also provide the
individual integration teams autonomy to develop and execute detailed
work plans in their respective areas. The program office serves as an
overall project manager for all integration tasks. The general
responsibilities of the program office include coordinating the
day-to-day work of the individual project teams, keeping the integration
process moving forward, identifying and elevating key issues to the
steering committee for resolution, functioning as an independent
facilitator, managing the overall integration process and maintaining
consistent processes and coordination among individual project teams.
</p><p>In addition to the overall structure, a standardized framework should
be developed so that each integration team approaches the merger in a
consistent manner. Each integration team, working within the overall
framework, must develop detailed work plans with realistic milestones,
prepare assessments of policies and procedures and complete other
analyses as necessary given the specifics of the particular merger.
Given the inherent complexity of a merger, the standardized framework
will allow for coordination within and between each of the integration
teams. </p><p>• <i>Consider Integration Management a Full-Time
Job</i>. It is important to recognize that overall integration of
management is a full-time job. The program office, as described in the
diagram above, is more adequately described as a project manager and
should be versed in project-management skills. This role can be filled
by an external financial professional or by an internal resource.
Regardless of what resource is ultimately chosen to fill the program
manager role, the position should be viewed as a full-time endeavor.
In addition to the program manager role, the integration work being
conducted by the individual integration teams will require a
significant time commitment, and it is often necessary to reassign
day-to-day responsibilities to other individuals within the
organization. Therefore, the effect on the day-to-day operations of the
organization should be considered when the integration team leaders and
team members are selected. It would be ideal that the individuals who
are assigned to the merger integration process are fully dedicated (or
substantially dedicated) resources, and that their selection to the
integration team will not have a detrimental effect on routine
business operations. </p><p>• <i>Exhibit Speed and Decisiveness of
Action</i>. In many mergers, the achievement of synergies (be it
revenue-enhancement or cost savings) is based on the assumption that
the merging companies will eventually operate as one operating entity
and therefore increase revenues, eliminate unneeded duplicative
overhead and leverage the "best practices" of each
organization to achieve operational efficiencies. Typically, time is
of the essence, and speed of execution is critical to achieving or
surpassing the expectations of management, investors and other
stakeholders. Delays in integration implementation only put the
success of the merger at risk. </p><p>Speed and decisive action can be
achieved through various means including, but not limited to,
scheduling periodic (often weekly) meetings with the steering
committee and integration team leaders. The purpose of the steering
committee meetings should be to review proposals and/or analyses and
to make strategic decisions necessary for the integration teams to
continue executing their plan. The purpose of the integration team
leader meetings should be to facilitate communications across all
teams as well as to ensure that issues and obstacles are identified
and action plans are developed to resolve them in a timely manner. It
is not acceptable to meet by rote; the meeting facilitator should ensure
that issues and problems are addressed and resolved. When they cannot
be resolved, subsequent steps should be clearly identified and
documented, specific tasks should be assigned to team members and
deadlines established. These steps will ensure that that the overall
integration process can move forward efficiently and effectively.
</p><p>• <i>Establish a Vision and Clear Goals</i>. Another important
aspect of merger integration planning and execution is the development
and communication of an overall corporate vision. The vision should
articulate what senior management envisions the new organization will
be or what the organization is striving to achieve. The vision may
also contemplate and articulate the product/service offering to its
customers and the company's promise to them. In addition, it is
important to identify specific and clear goals. The goals may target
operational or financial improvements, but can also be related to
other aspects of the organization such as employee retention, reducing
business risks or improving customer retention. The goals should be
measurable and as specific as possible, so that over time their
achievement (or shortcomings) can be assessed, and they should also be
aggressively monitored throughout the integration process and beyond.
Throughout the merger integration process, a clearly articulated and
understandable vision combined with specific goals will help provide
direction to merger integration teams and other employees who are
responsible for the execution of the merger strategy and the
achievement of these goals. </p><p>• <i>Establish Open, Frequent and
Timely Communications</i>. It is critical that open, intellectually
honest and timely communications be conducted within the steering
committee and the individual merger integration teams. Open
communication can be accomplished by conducting weekly meetings with
the steering committee to review overall progress, to discuss and
decide upon high-level strategic decisions and to resolve conflicts.
Conducting periodic meetings with the merger integration team leaders
is important and can help facilitate the efficient dissemination of
key strategic decisions made by the steering committee and allow for
open communications about issues, problems or successes being
experienced by individual teams. Because of a merger's complexity and
the extensive relations and dependencies between business functions,
conducting regularly scheduled periodic meetings is probably the most
efficient way to communicate and facilitate decision-making
(<i>e.g.</i>, an information technology decision for a back-office
system may affect various departments or operational functions).

</p><p>Mergers or acquisitions create ambiguity and uncertainty related to
employees, particularly concerning their jobs and their future
prospects with the new company. Clear, concise and informative
communication with employees is critical to mitigate speculation,
rumors and disinformation that may circulate throughout the
organization. Keeping employees abreast of key strategic decisions
made, major milestones or goals achieved and significant upcoming
events will also boost morale within the organization. This, in turn,
will allow employees who interface with customers or other external
constituents on a daily basis to more effectively and positively
communicate facts related to the merger. These types of communications
can be achieved through scheduling regular staff meetings, creating
and publishing a newsletter focused on merger activities and posting
information on internal electronic bulletin boards or via e-mail
distribution. </p><p>Communications with external constituents including
customers, vendors and investors are paramount, as well. Informing
these stakeholders of the progress made toward successfully merging
the two organizations is critical given that the company recently
emerged from bankruptcy protection and is still in the process of
re-establishing business relationships. </p><p>• <i>Actively Address
Cultural Issues</i>. In situations where a reorganization plan
contemplates a merger or acquisition, focusing on and addressing the
cultural differences between the two corporations is often
underappreciated. In the integration structure described above, a
separate merger integration team responsible for developing and
implementing a cultural integration plan is essential. Without being
anticipated and actively managed, disparate corporate cultures can
completely undermine the merger integration process by creating
internal tensions and resentment within the organization that can
negatively impact employee performance and the bottom line. </p><p>•
<i>Focus on Customers</i>. Significant corporate resources will be
expended to ensure that the merger of two companies is successful. Time
and resources will be spent on developing detailed work plans,
analyzing various strategic alternatives, meeting to discuss and
resolve problems and issues, mitigating risks and completing myriad
other tasks – all of which are necessary and essential to ensure
that the merger is a success and goals are achieved. However, if
product and service offerings and the customer experience are not an
explicit focus throughout the merger integration process, defined
goals or general expectations of the merger may never be fully achieved.
The merger should not only provide increased value to the customer,
but the transition to the combined entity should also be transparent
to customers. The new organization must vigilantly guard against
getting too "caught up in the merger" and losing sight of
the customer. </p><p>• <i>Rigorously Manage Risks</i>. There is little
doubt that no matter how much planning is conducted, unanticipated
risks, challenges and difficulties will be encountered and addressed
after the integration gets underway. All involved should aggressively
identify risks associated with the merger or acquisition. The
identification of risks should not be considered a one-time event or
task and should be continually reviewed, revised and updated. The
rigorous management of risks – addressing them head-on and
developing solutions to mitigate them quickly and decisively –
is of critical importance. The types of risks that should be
identified and aggressively managed include financial risks,
operational risks, execution risks, risks related to the delay of
implementation and personnel-related risks.

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<p> <b>Conclusion</b> </p><p>Success for in-court restructuring cases can be
defined in various ways, including emerging by a certain date,
achieving a recovery to creditors in excess of a specific percentage,
raising more than a specific amount of new capital or arranging
favorable exit financing. However, in instances where a merger or
acquisition is the key aspect of the turnaround plan, success should
not be viewed this short-sightedly or in such a myopic manner. True
success in these instances can only be fully assessed after the merger
or acquisition is complete and the "actual vs. forecast"
analysis can be prepared. Given the enormous task and complexities
associated with successfully merging two organizations, the key
success factors described above can be employed to help ensure that in
the final analysis, a turnaround plan involving a merger or acquisition
can be judged a success. </p>