Paul Holmes 08 Jan 2007 // 12:00AM GMT
In August 2004, Duane Reade was taken private by Oak Hill Capital Partners, a private equity firm, but continued to maintain publicly traded debt securities.
With the additional flexibility gained from being private, the company planned to pursue new avenues for improving and strengthening the business. But the pace of change was slower than anticipated given a challenging New York City economy, various pressures on sales, higher expenses, increased competition from national chains entering the New York market, and protracted and costly union-related litigation. As a result, the company’s financial results suffered and showed significant year-over-year declines.
Duane Reade’s soft financial performance combined with a lack of clarity about how the company would be able to turn around the business led bondholders to worry of a possible bankruptcy filing and ultimately drove the price of the company’s bonds down to approximately 65, meaning investors believed Duane Reade could only repay approximately 65 cents on each dollar of its debt.
In November 2005, the Company brought in a new CEO Richard Dreiling to turn the company around. After spending two months evaluating the business, Dreiling formulated a plan to improve financial results, which was dubbed “Duane Reade Full Potential,” and decided to enhance the existing management team.
Duane Reade needed help re-building its credibility with key stakeholders and turned to Financial Dynamics to help senior management develop and execute a communications plan to accomplish this. The integrated investor and media relations program would develop and articulate a formal turnaround plan for the business, Introduce and gain credibility for the new CEO and expanded management team, earn support from the investment community and improve the valuation of the distressed public debt, and repair and enhance the Duane Reade brand with investors and consumers alike.
To accomplish the program’s broad goals, it was necessary to target a comprehensive audience including fixed income analysts, high yield investors, reporters, and consumers. All of these audiences are integrated and therefore all aspects of the program needed to work in concert. More specifically, the PR team worked to ensure that all outbound communications were structured to reflect extremely consistent messaging. Not only was this crucial in presenting one corporate voice to the public at large, but it was also helpful in that each medium was used to reinforce efforts across all audiences.
Prior to creating and launching the communications campaign, FD held a corporate messaging session with the broad senior management team at Duane Reade to debate and discuss their key objectives and perceived strengths and weaknesses. Based on an interactive dialog with senior management, the firm began planning how to best align the company’s internal plans and goals with external perceptions and concerns. FD also carefully researched Duane Reade’s existing holders, analysts, and covering reporters, and developed detailed target lists for future outreach to each of these critical groups.
Based upon the results of that research, the PR team determined that it was important for management to be perceived as taking control of what was seen by many as a damaged business in an unstable situation. Therefore, the communications advisors decided management should use the fourth quarter earnings call to launch Duane Reade Full Potential and set the tone for a new era.
The first phase of the program focused on internal preparation.
“We wanted Duane Reade to speak publicly and have the chance to tell their full story to all audiences at one time, in their own words, and not through the prism of an analyst report or news article,” says Cara O’Brien of Financial Dynamics.
For that reason, the PR team used the period prior to earnings to internally prepare a strategy and supporting messages that would effectively launch the new management team and the new strategy to the market. The team created and refined corporate messaging blueprint that formally outlined how Duane Reade Full Potential would be positioned to the public; developed all communications materials for the financial and media communities, including the press releases launching and explaining Duane Reade Full Potential and the new management team, the earnings conference call script, detailed Q&A preparation documents, and talking points for media and analyst calls; and provided media training to senior management to help them gain confidence when delivering the recently developed key messages.
To launch the story with a single, consistent voice, the team leveraged the fourth quarter earnings conference call as a broader forum to formally introduce the new CEO and launch Duane Reade Full Potential. It arranged one-on-one meetings with key bondholders, analysts, and reporters to introduce the new management team and turnaround plan directly following the earnings call.
And finally, FD sought to build credibility through ongoing communications.
“In order to build and maintain credibility for the new CEO and the turnaround strategy, we knew that all of Duane Reade’s achievements, large and small, must be continuously communicated to external parties,” says O’Brien. “By doing so, we were able to highlight victories Duane Reade was and is achieving, demonstrate tangible progress, and continue to build credibility for the new CEO.”
The PR team hosted a store tour for a broad group to tangibly demonstrate the improvements that were being made as part of the turnaround plan; developed allies in the press by taking Duane Reade’s story to carefully selected reporters and building relationships that will allow Duane Reade to promote their good news and weather bad if/when necessary; gathered and analyzed feedback to inform future activities and refine messages; and provided consistent updates on the progress of the strategy through press releases, conference calls, and other select outreach.
The team’s efforts in conjunction with solid execution on the part of the company were rewarded by both investors and the media.
Prior to launching Duane Reade Full Potential, the vast majority of media coverage on the company was negative and focused on the poor financial results, labor union issues, and the challenges the company was facing from national drug retailers. However, once the turnaround plan, was launched and the company reached out to the media and began to generate tangible results, it beganto see the tone of coverage shift to emphasize the new and exciting things going on at Duane Reade and the strong future prospects of the company.
Since the launch of Duane Reade Full Potential, the company has been invited to two major brokerage high yield conferences, analyst reports have a much more positive tone, and management is being sought out by journalists as desired expert sources for various industry and trend stories.
Most importantly, when Dreiling was first hired, Duane Reade’s bonds were trading at approximately 65 cents on the dollar. Most recently the same bonds were trading at approximately 88 cents on the dollar, a significant increase that reflects the investment community’s belief that Duane Reade will execute on its plan, return to a healthy, profitable company, and fully repay its obligations.