Idearc, the big directory publisher, filed for protection under bankruptcy law last week with the intention of restructuring their debt in order to give the business operating room.
“Essentially we have a company with good potential being held back by a terminally ill balance sheet,” Chief Executive Scott W. Klein said.
Terminally ill balance sheets are not good for anyone in the capital structure: secured and unsecured lenders and the equity holders. Idearc has $9 billion of bank debt and intends to convert that to $3 billion, with the remaining bank debt and bonds being converted to equity.
The current debt load calls for interest payments of about $650 million a year on a business that is experiencing significant declines in revenue.
How does a restructuring work? A company like Idearc, which has a declining business but throws off a lot of cash, is worth significantly more to all of its stakeholders as an ongoing business than as a liquidated business. It’s in the interest of the parties involved to reset the debt load so that the company can operate with more flexibility, ensure the security of its debt and increase the value of its equity to the benefit of customers, employees and stakeholders.
That means, though, that the company has a focus and a direction that can build value.
That lead me to Idearc’s mission statement. Read it closely. The focus is on helping consumers “find what they want, how and where they want to find it.” And, helping businesses “attract the customers they want.” Idearc is the experts at that.
Is this really true? It’s a bold claim that speaks to the basic business philosophy behind the company’s activity. But is it a mission that can energize the people in the company, be meaningful in terms of each decision an individual makes?
A few years ago, my senior team and I spent some time with Jim Collins, the author of Good to Great. His book was clarifying in its emphasis on focus, fortitude and simplicity. One of his mandates to companies was that they try to decide what they could be the best at the world in.
I’ve thought about that mandate a lot. It’s an audacious claim to make, but Collins’ belief was that if this claim was made with ownership and authenticity, then it would help focus thinking and decision-making for the entire company.
Google has had that laser focus from the outset. Look at the company’s philosophy as presented on their web site. I’m not saying we can all be Google, but there’s a lesson there.
In today’s marketplace, having a mission that can be relevant and valuable to every one of your colleagues feels more important than ever. When you’re facing adversity, you want to know that what you are doing is important, that it matters and that you might be able to succeed. That’s the filter you have to run your critical statements through.
One last thought: Look at the mix of Idearc’s revenue over the past three years. The company is in the midst of a huge change, with highly profitable revenue declining at an accelerating pace and new, developing revenue growing at a slower pace. The mission of that company and its executives is to find a path to transition the businesses core values and skills to a wholly changed economic model.
We’re facing that same challenge at NCI. We want to balance our belief and our focus on our core business models with an approach to expanding and innovating in new ways to serve our customers, and their customers. It’s not easy and requires us to revisit and rethink a lot of the assumptions we have about our business.
Hard, but exciting.
P.S. Kelsey’s blog offers more color on the company’s announcement.