Business Restructuring: A View from 40,000 Feet
| Author | Marvin Yontef and Elizabeth Breen |
| Pages | 1-25 |
Business
Restructuring:
A
View
from
40,000 Feet
Marvin
Yontef
and
Elizabeth
Breen*
If
we
think back
to our
post-World
War II
economy,
the
whole topic
of
"restructuring"
was
largely
a
one-way street
for
quite
a
long time.
Rebuilding
the
North American economy following
the war
involved
a
tremendous build-up
of
industrial capability. Whether this related
to
the
Cold War,
the
development
of
residential
and
commercial real estate
for
the
returning troops
and
their
families,
expansion resulting
from
new
immigrants,
the
building
of
roads,
the
manufacture
of
automobiles,
increasing manufacturing capacity generally,
or
expanding
our
resource
base (which included,
for
example, dramatic developments
on the
ener-
gy
front
with
the
discovery
of oil in
Alberta), there
was no
mistaking
the
overall
trend
of
development
and
expansion
in
North America.
To be
sure, there
was the
occasional
bit of
indigestion that people learned
to
call
a
"recession." However, there
was a
conspicuous absence
of
major
business restructurings and,
if the
topic
was
ever raised, people remi-
nisced about
the
hard times
of the
Depression.
Several
factors
drove this rapid expansion
of the
North American
economy.
Demographic trends aside,
we
were
the
beneficiaries
of
inex-
Both
of the
Ontario
Bar and
partners
of
Stikeman Elliott LLP. This
paper
was
last revised
on May 15,
2004,
and
does
not
address
facts
or
events
after
such
date.
It
should
also
be
noted
that
counsel
of
record
for Air
Canada's
restruc-
turing
is
Stikeman Elliott
LLP and
that
the
writers
are
integral
parts
of the
team working
on
that case.
1
2
MARVIN YONTEF
AND
ELIZABETH BREEN
pensive
energy,
a low
interest rate environment,
a
benign
tax
system,
significant
government
projects
and
assistance plans and,
of
course,
being next door
to the
United States,
we
had,
in the
words
of a
former
Prime Minister,
the
benefits
and
burdens
of
sharing
a bed
with
an
ele-
phant.
Nevertheless,
one of the
consequences
of
this expansion
was the
rapid accumulation
of
post-war capacity
itself
and the
fact
that this
could
not
sustain itself forever.
A. THE
1960s
Some
of the
environment
we
experience today
is
referable
to the "go go
years"
of the
1960s. Although there
is a
great deal written about this,
how
many
of us
remember such luminaries
as
Jimmy
Ling (who start-
ed a
conglomerate called Ling-Temco-Voight, which became LTV),
Harold Geneen
(ITT),
or
Charlie Bluhdorn
(Gulf
&
Western)?
With hind-
sight,
it is
hard
to
recall
the
rationale
for
combining
a
number
of
unre-
lated businesses
to
form
often
unwieldy business enterprises,
but
these
personalities were synonymous with some
of the
high-profile "con-
glomerates" that,
fuelled
by
"strategic thinking"
from
increasingly
famous
theories
and a
growing number
of
business school graduates
of
Ivy
League schools, antitrust concerns about expanding market share
in
one's
own
industry,
and a
ready supply
of
supporters
in the
high-
growth mutual
fund
and
other institutional investor
businesses,1
signi-
fied
important trends
in the
United States that spilled into Canada.
These were also times before "tax reform"
of
1971, when there
was no
capital
gains tax,
so
there
was
plenty
to buy or to
sell
or, if one
were
so
inclined,
opportunities
to
engage
in
"dividend
stripping."
B.
THE
1980s
With
the
benefit
of
hindsight,
influences
such
as the
energy shocks
of
the
1970s, concerns about
foreign
ownership
of
resources,
and an
increasing preoccupation with
inflation
led to the
first
wave
of
North
American
business restructurings. What
had
been
fanciful
expansions
into unrelated industries coined
an
interesting word
—
instead
of
diver-
1
See,
for
example,
I.
Friend,
M.
Blume,
& J.
Crockett, Mutual
Funds
and
Other
Institutional
Investors:
A New
Perspective
(New York: McGraw
Hill,
1970).
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