Creating Value through Corporate Restructuring: Case Studies in Bankruptcies, Buyouts, and Breakups

Stuart C. Gilson

Book | 2010

Creating Value through Corporate Restructuring: Case Studies in Bankruptcies, Buyouts, and Breakups

Abstract

A collection of case studies illustrates real-world techniques, implementation, and strategies on corporate restructuring. Over the period 1981-1998, public companies with combined assets of over half a trillion dollars filed for Chapter 11 bankruptcy. Over the same period, over 400 public companies underwent corporate spin-offs, divesting businesses valued at more than $250 billion. Each of these companies, and all of these dollars, were in some way or another involved in corporate restructuring. Gilson's case studies have been used extensively in executive programs and are perfect tools to refer to when faced with real-world corporate restructuring issues.

Keywords: Restructuring; Insolvency and Bankruptcy; Management Analysis, Tools, and Techniques; Public Ownership; Value Creation;

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Gilson, Stuart C. Creating Value through Corporate Restructuring: Case Studies in Bankruptcies, Buyouts, and Breakups. 2nd ed. John Wiley & Sons, 2010.

In early 2013, Central European Distribution Corporation (CEDC), a large publicly traded producer and distributer of vodka and spirits in Eastern and Central Europe, has suffered significant declines in its financial performance, is at risk of defaulting on its debt, and is under pressure from its largest shareholders to give them control of the board and to restructure its debt to avoid bankruptcy. The largest shareholder, billionaire Russian investor Roustam Tariko, has proposed an out of court exchange offer for CEDC's publicly traded bonds and investment in CEDC's stock that would give him full ownership of the company. If the exchange offer fails, the company will file for prepackaged Chapter 11 bankruptcy in the United States.

In 2016, a trial began to determine the future of Sabine Oil & Gas Corporation’s $3 billion chapter 11 reorganization plan. The plan called for first and second lien secured creditors to receive new claims representing approximately 98% of the reorganized company’s enterprise value, leaving unsecured creditors, owed $1.4 billion, to recover less than two cents on the dollar. The plan had the support of the secured creditors, but unsecured creditors were strongly opposed. At the heart of the unsecured creditors’ objections to the plan was a dramatically different view on valuation. How much were Sabine's oil and gas reserves worth today? How much were they worth at the time Sabine filed for chapter 11? And, based on these valuations, what was a fair recovery for Sabine's creditors?

Case | HBS Case Collection | January 2017 (Revised January 2019)

The Rise and Fall of Lehman Brothers

Stuart C. Gilson, Kristin Mugford and Sarah L. Abbott

With nearly $700 billion in assets, Lehman was the largest U.S. bankruptcy in history. In 2007, Lehman achieved record earnings of over $4 billion on revenues of $60 billion. By September 2008 the fourth largest investment bank in the world was bankrupt. How had a successful investment bank with a long and storied history effectively disappeared overnight? This case reviews the decisions made by Lehman’s management, board and government regulators leading up to September 2008 to understand the factors that contributed to this historic event and the choices that might have led to a different outcome. Lehman had an aggressive CEO in Dick Fuld; a “countercyclical” growth strategy; a firm culture that rewarded risk; questionable accounting policies; never before seen levels of market volatility; and a high leverage business model employed by many investment banks. On the fateful “Lehman weekend” of September 13, 2008 the most senior leaders within Treasury, the NY Fed, and the SEC chose not to bail out Lehman and instead advised Lehman’s board to “take action”. In 2010 court-appointed examiner Anton R. Valukas released a landmark 2,200 page report based upon a review of over 34 million documents and 300 interviews to try to understand what happened and the lessons for the future. His findings serve as a basis for this case.

Keywords: bankruptcy; financial distress; Accounting policies; Business ethics; Financial Reporting; Volatility; Judgments; Financial Crisis; Insolvency and Bankruptcy; Financial Liquidity; Investment Banking; Financial Management; Financial Strategy; Corporate Accountability; Corporate Disclosure; Corporate Governance; Crisis Management; Risk Management; Failure; Business and Government Relations; Ethics; Banking Industry; New York (city, NY);

Citation:

Gilson, Stuart C., Kristin Mugford, and Sarah L. Abbott. "The Rise and Fall of Lehman Brothers." Harvard Business School Case 217-041, January 2017. (Revised January 2019.) View Details

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Creating Value through Corporate Restructuring: Case Studies in Bankruptcies, Buyouts, and Breakups

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