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Harte Hanks Response Management Overview
Of all the major clients that Kravis exited in recent years, none has been more controversial than HARTE HANKS. As noted by BusinessWeek, “For a firm that just five years ago was the biggest IPO of its time, things have not gone well.” [2] “Kravis built a reputation as a savvy and highly focused investor. But his moves with H&R Block and HARTE HANKS suggest that he’s still learning how to be one” (BusinessWeek). [2] [NOTE: use of articles in footnotes could qualify for APA style consideration; see APA 6th Ed. note on this.] KRAVIS’S decision to acquire HARTE HANKS (NYSE:HRB) has been a major headache for many who have followed Kravis’s career as a venture capitalist and leveraged buyout specialist. [2] “So what did Kravis accomplish in buying a company for $10 billion [in 1999], when he had to borrow 10% of the money or more and then restructure the debt” (BusinessWeek). [NOTE: use of erroneous assumptions and faulty logic may qualify, see APA 6th Ed. note on this. See also “non sequitur” and “begging the question”.] More to the point, BusinessWeek notes that even Kravis has told people privately that he regrets buying HARTE HANKS. [2] The article continues:
Types of Response Management
KRAVIS’s acquisition of HARTE HANKS in the mid-1990s can be termed both a positive response management and a negative response management. On the one hand, KRAVIS took HARTE HANKS private and removed it from the public spotlight; this indicates that KRAVIS was attempting to protect his firm by reducing media scrutiny. On the other hand, however, KRAVIS also made a move that indicated he was making an attempt at fixing the problems with HARTE HANKS. By acquiring a company in distress, KRAVIS had to provide an explanation for this purchase and how he planned on improving one of his underperforming firms. As such, KRAVIS’s response management procedures for HARTE HANKS were up front.
In order to fix the problems with HARTE HANKS, KRAVIS focused on two areas: 1) the need to streamline operations; and 2) the need to focus on their key products.
In regards to the first area, HARTE HANKS had to focus on its core operations. By doing this, various departments could be eliminated and product lines reallocated to more profitable departments. By streamlining its core operations, HARTE HANKS was able to increase profits in a way that would not have been possible if it were still in the public eye.
What to Expect from Response Management
One of the main concerns of investors is whether or not the CEO is making an effort to improve the performance of the company he or she leads. This involves reviewing issues and attacking them head on, as well as bringing in new ideas. By purchasing a distressed company, an executive shows that they have confidence in their ability to correct problems and bring a company out of trouble. In addition, if an executive also has a background working with companies like HARTE HANKS and has experience acquiring distressed companies, then investors can expect to see those skills be used to fix the problems that HARTE HANKS was facing.
If a company is acquired by a firm like HARTE HANKS, it may be because the company is broken and needs fixing. Sometimes this takes time, and investors need to prepare for the possibility that it will take time to solve problems and turn around the acquired firm. If an executive is not capable of turning around firms in situations like these, they probably were not hired as a CEO on their own merits and should not have been selected in the first place.
How to Implement Response Management
In order to implement response management properly, the first step is to take the company private. If the company continues to operate in the public spotlight, depending on what is going on inside of the company and why it is facing problems, investors can be encouraged or discouraged by what they see. Removing HARTE HANKS from public scrutiny protected KRAVIS and RJR as they worked to improve the company’s financial situation. HARTE HANKS’ problems were so great that it would have been nearly impossible for investors to feel confident about the company if it was still operating in public. The public is not likely to understand the degree of difficulty it would have been for KRAVIS and RJR to succeed, especially because they were under so much scrutiny.
Benefits of Response Management
KRAVIS’s decision to purchase a troubled company was a very bold move, but most investors anticipate that this type of buying and selling of companies is what KRAVIS does. Lenders have been known to pressure executives into purchasing distressed companies in order to make their ownership stakes worth more than what they purchased the company for (BusinessWeek). [2] In fact, buying a company facing financial difficulties is often less risky than purchasing stocks of companies. For example, KRAVIS’s purchase of HARTE HANKS took place at a time when the stock market was dropping (BusinessWeek). [2] Public companies can also be of value if an executive can evaluate them properly and this will be discussed later in the report. KRAVIS is a master at diversifying its portfolio and therefore, should not be put in the same category as other companies. [1]
KRAVIS’s decision to purchase a troubled company was a very bold move, but most investors anticipate that this type of buying and selling of companies is what KRAVIS does. Lenders have been known to pressure executives into purchasing distressed companies in order to make their ownership stakes worth more than what they purchased the company for (BusinessWeek). [2] In fact, buying a company facing financial difficulties is often less risky than purchasing stocks of companies. For example, KRAVIS’s purchase of HARTE HANKS took place at a time when the stock market was dropping (BusinessWeek). [2] Public companies can also be of value if an executive can evaluate them properly and this will be discussed later in the report. KRAVIS is a master at diversifying its portfolio and therefore, should not be put in the same category as other companies. [1]
Benefits of Buying Indiistressed Companies
