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 / Spring 2006 / Issue 42(originally published by Booz & Company)


Commit and Deliver

A corporate bankruptcy usually involves a period during which drastic measures can be taken that wouldn’t otherwise be possible or legally permissible. That period lasted five months for Chiquita. During that time, to get back into solvency, Chiquita agreed to swap equity for creditors’ debt; this hurt the shareholders considerably but allowed the company to survive. The creditors, in turn, picked five new board members, including me, and my colleagues on the board asked me to become CEO. I started in that position on March 20, 2002, the day the judge signed the approval to come out of bankruptcy.

During the next nine months, we added three world-class executives to the board of directors, resulting in a governing body that any Fortune 100 company would have been proud to have. The board made significant contributions to the strategy and direction of the enterprise. It was at the front line in ensuring that best governance practices were constantly observed, and that integrity played an integral role in everything we did.

Early Surprises
From the start, we knew we weren’t close to being financially stable; statistics show that more than half of the companies that come out of bankruptcy go back into it. There was still too much debt for the operation, cash flow was low, and there were a number of complicating factors. My hip had just been replaced and I spent my first several meetings with the board and company executives as a recovering surgical patient. But most important, the new board expected that we would soon be selling the company. Those who owned most of the company’s shares also expected a sale. They were hedge fund managers, who had bought the stock during the bankruptcy in hopes of a windfall.

We discovered quickly that a sale wasn’t possible, so we shifted course and decided to rebuild Chiquita. This triggered a profound change in expectations; it felt like buying a house, intending to resell it, and then suddenly discovering that we would have to live there for a long time. Instead of calling investment bankers to sort through the bids, we put together a team of management strategists. In a flurry of shareholder response, more than 40 million shares traded during the first two months, an amount equal to the entire capitalization of the company.

Not all the surprises were bad. Chiquita, despite its hard times, had an outstanding cadre of executives, managers, and employees at every level. I found a spirit of hope and energy, and a deep belief that the company would survive. People accepted the tough medicine of restructuring with a positive attitude. As long as they could see a better future, they were fully on board. We added a few outstanding people from outside the company and reshuffled roles and responsibilities. Then we analyzed and evaluated every part of every business to come up with a plan for transforming Chiquita.

We held our first major shareholder meeting in September 2002, six months after coming out of bankruptcy. We laid out our new strategy. We would start by reducing the company’s debt from $650 million to $400 million. Then we would focus the enterprise on its core businesses and sell the outliers. Finally, we would reduce costs by more than $100 million annually. Within three years, with careful cash management, we expected to be consistently profitable, financially strong, and ready for growth.

The first question at that meeting came from a hedge fund manager. “You’ll have a lot of cash as a result of this. When do you start paying dividends?”

It was baffling. We were a company rebuilding itself out of bankruptcy; the concern with dividends seemed incredibly naive. But the shareholders were not interested in hearing about a three-year plan. Some had taken a loss on the stock; others had bought it at a bargain. They wanted to build the price up quickly so they could cash in.

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