Leveraging Restructuring for Investment Gains: Insights from Corporate Breakdowns

One of the most fascinating parts of investing is when I get to witness major corporate restructurings. There’s something inherently powerful about watching an organization reinvent itself—especially when it means shedding dead weight and focusing on the core areas that make it strong. Over time, I've learned that these restructurings, often written off by many as desperate last-ditch efforts, can present some of the best investment opportunities if you know how to spot them. Let me share a few insights from my experience in this area.

I recall an instance years ago when I first came across a restructuring case that piqued my interest. It was the sort of situation where most investors had given up on the company, but my curiosity got the better of me. My mentor once said, “When everyone is running out of the door, that’s the moment you should start paying close attention.” And that’s exactly what I did.

The Power of Shedding Unprofitable Segments

The core idea behind restructuring is that sometimes companies carry segments that weigh them down. It’s like trying to run a marathon while carrying a bag of bricks—it slows you down. By shedding these underperforming or unprofitable segments, a company can become leaner and more focused, which ultimately unlocks value for investors who were patient enough to see it through.

Take GE (General Electric), for instance. For years, GE was a massive conglomerate, operating across numerous sectors—energy, aviation, healthcare, finance, and more. But as times changed, so did the fortunes of these segments, and not all parts of the company could keep up. GE’s financial arm, GE Capital, which had once been a major profit engine, became an anchor dragging the entire business down. It wasn’t until GE began a major restructuring process in recent years—shedding GE Capital and focusing on core strengths like aviation and healthcare—that the company began to regain investor confidence.

When GE made the decision to sell off GE Capital and divest from some of their legacy businesses, it allowed them to concentrate resources and management efforts where they had competitive advantages. This leaner, more focused approach helped GE stabilize and start to show signs of recovery. For investors who bought in during the middle of their restructuring process, there were significant gains as the stock price climbed from multi-year lows.

Another Case: Fiat Chrysler Automobiles (FCA)

Another example of successful restructuring is Fiat Chrysler Automobiles (FCA). Fiat acquired Chrysler in the wake of Chrysler’s bankruptcy during the financial crisis of 2008-2009. It was a bold move, but Sergio Marchionne, the late CEO of Fiat Chrysler, had a plan—one that focused on shedding non-core assets and reinvesting in profitable brands. Under his leadership, FCA made the strategic decision to spin off unprofitable brands and focus on the core strengths of Jeep and Ram, which were showing strong consumer demand.

The results were nothing short of remarkable. By focusing on the brands that mattered—Jeep and Ram—FCA was able to generate consistent profitability and grow its market share in the highly competitive automotive industry. When FCA merged with PSA Group to form Stellantis in 2021, the combined entity became one of the largest automakers globally, and investors who had stayed the course were richly rewarded. The restructuring process had transformed an undervalued company into a highly competitive player with a focused lineup.

What to Look for in Restructuring Opportunities

1. Identify the Core Strengths: When I look at a restructuring opportunity, the first thing I want to understand is what’s working for the company. What segments are driving profitability, and where does the company have a competitive edge? In the case of FCA, it was Jeep and Ram—two brands with strong market positions and high consumer demand. If the core business is strong, then shedding the weaker parts can lead to significant value creation.

2. Follow the Cash Flow: Companies that are going through restructuring often make changes to improve their cash flow. This could mean selling non-core assets, reducing debt, or streamlining operations. One thing I always check is whether the restructuring plan includes actions that will generate positive cash flow in the near term. A restructuring that focuses on improving cash flow is more likely to succeed and lead to a higher valuation.

3. Management’s Commitment to Change: Restructuring is tough. It involves difficult decisions, layoffs, and a lot of hard work. That’s why management’s commitment is so important. In both GE and FCA’s cases, management had a clear vision for how they wanted to reshape the company, and they were willing to make the tough choices necessary to get there. I’ve found that if management isn’t fully committed, the restructuring is unlikely to succeed.

   
   

Case in Point: Hewlett Packard Enterprise (HPE)

Another company that underwent a significant restructuring is Hewlett Packard. In 2015, HP decided to split into two separate entities: HP Inc., which focused on printers and PCs, and Hewlett Packard Enterprise (HPE), which concentrated on enterprise services, servers, and networking solutions. The rationale was simple—each side of the business had different needs and growth trajectories, and splitting them would allow each entity to thrive independently.

Since the split, HPE has been able to focus on the enterprise market, investing in cloud services and other high-growth areas. The split allowed HPE to become more nimble and make strategic acquisitions that bolstered its position in the enterprise technology space. The result? A more focused, profitable company that was better able to adapt to the changing tech landscape. Investors who understood the benefits of the split and bought in saw significant returns as HPE executed its strategy.

Restructuring: A Key to Unlocking Value

Corporate restructuring is not a silver bullet—there are plenty of examples where restructurings have failed to achieve the desired results. But when done well, restructuring can transform an undervalued, struggling company into a lean, competitive powerhouse. The key is to identify those businesses with solid fundamentals that are simply burdened by unprofitable segments or an unsustainable structure.

From GE shedding GE Capital, to FCA doubling down on Jeep and Ram, to HPE splitting into two focused entities, these stories share a common theme: focus. By shedding what isn’t working and reinvesting in core strengths, these companies were able to create significant value for shareholders.

If you’re interested in finding investment opportunities in corporate restructurings, keep your eyes open for companies that are slimming down to focus on their strongest segments. Look for clear signs of management commitment, a realistic plan for cash flow improvement, and, above all, a core business that has a competitive advantage. When you find those elements in place, you may just be looking at the next great restructuring success story.