Restructuring and Market Performance in the Heinz Company - Case Study Example

To what extent does restructuring transform corporate market and financial performance? The Heinz Company In corporate management an expression “Restructuring” is commonly used which basically means to rearrange and reorganize a firm in such a way that it becomes more productive and profitable. Whenever a company wants to reorganize, rearrange or decrease its operations, then it chooses to go with restructuring. It also involves financing debts and selling out some portions and shares of the company to the investors. Restructuring can also be done as a bankruptcy component or when a company is bought by any other company. It mainly works on the principle of “Zero sum game”. It plays a vital role in decreasing the stress between debt holders and equity holders due to which they can come up with instant solutions of different problems. And on the other hand it also reduces financial crisis and losses. Financial performance and corporate markets have been transformed through restructuring to some extent, but the degree of transformation is the main question. This question is answered in the following example of a worldwide food processing company “THE HEINZ COMPANY”. According to Gordon Donaldson, “We have become so familiar with the phrase financial restructuring in the past decade that we often fail to ask why financial structure became such a battleground for contending agents of change.” (Donaldson 1994, 6) “H.J Heinz Company” was originated in Sharpsburg, Pennsylvania in 1869. The company was founded by German Henry John Heinz. At that time Heinz was only 25 years old and initially he used to distribute condiments to limited grocers by Horse-drawn wagon. Initially the company’s original name was “Anchor Pickle and Vinegar Works”. The first product line of the company had only horseradish but later tomato ketchup and pickles were also introduced. In 1874 L.C Noble became the partner of Heinz Company. After their partnership the company’s name changed from “Anchor Pickle and Vinegar Works” to “Heinz, Noble & Company” and they moved to a larger headquarter located near Pittsburgh. Their assets increased to 30 acres of Horseradish, 24 horses, 12 wagons, 100 acres of garden and a vinegar factory in St. Louis. In 1875, banking panic and economic chaos forced Heinz into bankruptcy and their business failed. But soon after in 1876, Heinz restructured its company with an aim to repay all his creditors and introduced a new product in its product line “Tomato Ketchup”. Heinz formed a partnership with its cousin Frederick and brother John. In 1877, their product line further extended which includes cider vinegar, apple butter, mustard, tomato soup, olives, sweet pickles, pickled cauliflower, chili sauce, mincemeat, pickled onions Red and Green pepper sauce and baked beans. The sweet pickles were introduced for the first time in the market by the Heinz Company. In 1886, Heinz travelled to England to promote its seven most excellent and most recent varieties of products. In England, he introduced its products to Fortnum & Mason who were the leading food distributors of that time and they accepted Heinz all seven products for distribution. After restructuring, Heinz’s business flourished to great height. In 1888, after getting some financial control over the company, Heinz reorganized its partnership as the H.J. Heinz Company. In 1880’s the blandness of typical American diet became the main opportunity for Heinz Company to spice it up with their long range of products. And it succeeds to do so. In 1892 Heinz coined a household slogan “57 varieties” despite the company hold 60 products at that time. At the World’s Columbian Exposition in Chicago held in the year 1893, Heinz had the major exhibit of any US food group. Heinz Company further expanded to open the first overseas office near the tower of London in 1896. According to Stuart C. Gilson, “In a bankruptcy restructuring, for example, one obvious objective is to reduce the firm’s overall debt load, however, cancellation of debt creates equivalent taxable income for the firm.” (Gilson 2001, 9) By 1900, the Heinz Company was the biggest maker of pickles, ketchup, mustard and vinegar. And it stands on the fourth position in the packing of Olives. Despite the company was making more than 200 products in 1900’s but Heinz didn’t change its original slogan. In 1905, the Heinz Company established its first plant in Peck ham. This was Heinz first plant in England. And in 1919, the Heinz Company’s second plant was opened in England in Harlesden. Heinz’s business had expanded with great boost and in 1919 he was the owner of 25 factories and 200 smaller facilities. In the same year “Henry Heinz” the founder of H.J Heinz Company died at the age of 75 because of “Pneumonia”. After Heinz death, his son, Howard Heinz, took the control of his father’s business. Howard Heinz started his career with H.J. Heinz Company as Advertising manager in the year 1905 and took the charge of Sales manager in 1907. From 1919 to 1941, all major plants of the company were built from the ground up and the company continued to expand internally in these years. In 1958, Heinz continued expanding and acquired a food processor plant in the Netherlands. Heinz further acquired many different companies across Italy, Mexico and Portugal from 1959 to 1962. In 1963 the U.S. tuna producer company “Star-Kist” was purchased by Heinz. Heinz also purchased Ore-Ida in 1965. And just after one year in 1966, R. Burt Gookin becomes the Chief Executive Officer of the Heinz Company. With the arrival of R. Burt Gookin in Heinz Company, the expansion and acquisitions quickened up with great boost. The great expansion and acquisitions of the Heinz Company enabled it to reach the billion dollar mark in Sales in 1972. During the period of 1972 to 1979 the company expanded vastly all over the world. It entered quickly into new countries, which brought new technologies in the company and their way of thinking became more creative and innovative. In 1979, Tony O’Reilly became the new Chief Executive Officer of The Heinz Company. And shortly became the chairperson after the death of H.J. Heinz II which was the son of Howard Heinz. He moved the head quarter of the company in “Pittsburgh”. O’Reilly expanded this company a lot. Heinz with the acquisition of “Weight Watchers” became the World leader in the nutrition and wellness revolution. At the same instant the company was branching out into new products but O’Reilly was the cutting back on conventional businesses. Heinz also created many major production bases across Spain, New Zealand and Portugal and penetrate markets for instance Russia, Czech Republic, South Korea, India, China, Botswana, Hungary, South Africa, Zimbabwe and Egypt. However, in 1980, Heinz decreased its quantity of plants from 14 to 7 and reduced employment by 18 percent, and on the same hand it increased the volume of the company. In 1986, O’Reilly’s hard working made the Heinz Company as one of the five best managed companies. And Heinz started to expand its businesses in the Third World, in overseas market. O’Reilly was the first non-family member who advanced to Heinz’s chair. In presence of O’Reilly, the sales of Heinz’s had doubled from $2.9 billion to $6.1 billion from 1980 to 1990. And during this period, the net profit of the company increased to $504 million. By the end of 1994, O’Reilly, the CEO had hoped that the annual revenues of the Heinz Company would increase to $10 billion, and then he will retire according to the contract in 1995. But this plan had been thwarted away because of recession and competition. And the company’s sale of 1993 and 1994 was only $7 billion. In spite of constantly rising dividends, Heinz Company’s stock declined to 30 percent from 1992 to 1994 because of the decrease in growth rate of the previous decade of the company. Due to which, O’Reilly arrived on a decision to delay his retirement. He decided to go with restructuring to stabilize the company’s financial status and to retain the market value. In 1993, the company divested which totalled to $700 million. Heinz also adopted some other internal cost-cutting procedures which included management staff and workforce reductions. He further shifted the company’s focus from domestic sales to the high-margin foodservice sector. And in 1994 he also acquired J.L. Foods from Borden Inc. for $500 million. O’Reilly expected for future growth on overseas markets and he targeted baby food for expansion. In the year of 1994, Heinz got Glaxo Holdings plc’s baby food interests in India and Farley’s baby food from the Boots Company PLC of Britain. Heinz 125th year in business was really disappointing for O’Reilly because of the flat sales. However in 1996, O’Reilly’s restructuring efforts started to benefit the company. The company’s sales improved to great extent in each of those years by more than $1 billion. And its revenue increased to $9.11 billion in 1996. Heinz acquisitions also played a vital role in expanding the company’s growth after its restructuring. In December 1994, The Kraft General Foods, Inc. received $200 million by Heinz for the All American Gourmet Company which makes the Budget Gourmet line of frozen meals. Heinz purchased the North American pet food businesses “The Quaker Oats” Company for $725 million which doubled the size of Heinz pet food process through the March of 1995. In March of 1996, Boulder, Colorado-based Earth’s Best, Inc. was acquired by Heinz. This Incorporation was the maker of organic baby food. William R. Johnson, who had joined Heinz in 1982, was announced the new president and COO of Heinz Company in June 1996. He was expected to be the likely successor of O’Reilly. William R. Johnson was the head of the pet food and tuna divisions, and there he was famously known for extracting out profits from bonds which had matured and cutting up costs. The Heinz Company again decided to launch a major restructuring in March 1997. That restructuring involved the sale of approximately twenty five plants and the reduction of about 2500 workforce. On the same hand, that restructuring also involved a plan to divest the Ore-Ida unit’s foodservice operations. In June 1997, that restructuring plan came to fulfilment when the said operations were sold to a firm of New Brunswick of Canada named the “McCain Foods Limited” for around $500 million. But Heinz retained the retail business of Ore-Ida. In fiscal 1997, Heinz took pre-tax charges of $647.2 million, in connection with the restructuring. Due to which the net income reduced to $301.9 million as compared with $659.3 million of 1996. However, Heinz constantly tried to make the careful acquisition on the same time. Heinz also acquired John West Foods Limited in June 1997 from Unilever. At that time John West was the leading brand in Fish and canned Tuna in its homeland, in the United Kingdom. In May 1998, O’Reilly became the non executive chairman and Johnson was announced as the Chief Executive Officer of Heinz. According to Gilson, “Corporate restructuring is no longer a rare or episodic event that happens to someone else. It has become a common and significant event in the professional lives of many managers.” (Gilson 2001, 3) The restructuring efforts of Heinz Company continued into the beginning of 21st Century. In 1998, Heinz setup a new unit called “Heinz Frozen Food Company” which was basically formed by the combination of operations of Heinz’s “Ore-Ida Foods” and “Weight Watchers Gourmets Food units” with a charge of $150 million. Recently Heinz announced a restructuring program which is the Heinz’s largest restructuring program yet and it is known as the “Program Millennium”. This program is projected to be of four years and is divided into different phases. The basic purpose of this restructuring program is to cut out costs, to improve factory utilization, to regain the market share, to strengthen the brand leadership, and to boost productivity. In the first phase of this program, the Heinz Company planned to reduce the workforce by an additional four thousand employees, to divest the Weight Watcher’s diet class business and to shut down its 20 factories from its remaining 100 factories. The company also planned to realign itself alongside international category lines, which is the major shift from preceding geographic arrangement. About 80 percent of Heinz global revenue was produced by six main categories which were tuna, frozen foods, pet foods, ketchup and convenience meals. Heinz also decided to focus on the six countries which were at the front to generate its revenue. These countries were the United Kingdom, the United States, New Zealand, Australia, Canada and Italy. It was also planned to increase the spending by an additional $100 million during the year 2000 for the marketing of Heinz’s flagship brands. Pretax restructuring charged to $552.8 million for the year 1999. The Heinz Company has changed all the time by using different new ideas. The Heinz Company always concentrated on its market share, production, quality, expansion and financial status. The Heinz Company developed through out the years and in its development we can see key phases of strategic development. Heinz Company made many acquisitions through out the years and succeed in every aspect. The Company’s success is mainly because of its innovative plans of restructuring which enabled it to grow and expand more and more through out the world. According to Dess, Lumpkin and Taylor, “We define Strategic Management as consisting of the analysis, decisions and actions an organization undertakes in order to create and sustain competitive advantages.” (Dess 2004, 7) From the above mentioned case of the H.J Heinz Company, one can surely say that restructuring transforms financial performance and corporate market to a great extent. When the H.J Heinz Company was facing a banking panic then they decided to go with restructuring to re-establish their financial status and to regain their lost market share. And just after it’s restructuring it is continuously moving towards success. It has done many acquisitions, geographical expansions and paid great attention towards its productivity, cost and quality. Heinz expanded its business worldwide, over the decades. The annual sales of at least twenty four of the company’s brands and products record more than $100 million each. And now more than 4000 products have been offered by Heinz which is far away from their 57 varieties. Its revenue according to the statistics of 2008 is approximately US$ 10,070 billion. In the above example, the scale of transformation of financial performance and corporate market through restructuring is highly cleared. References Dess, Gregory G; G. T. Lumpkin; Marilyn L. Taylor (2004) Strategic Management: Creating Competitive Advantages Donaldson, Gordon. ( 1994) Corporate Restructuring: Managing the Change Process from Within. HBS Press Book Gilson, Stuart C. (2001) Creating Value through Corporate Restructuring. John Wiley & Sons Read More