Money transfer company Western Union Co. (WU) has announced a comprehensive restructuring program with an aim to simplify its management structure and reduce the number of entities, thereby enhancing business transparency. The announcement comes just over a month after Hikmet Ersek replaced Christina Gold as CEO.
This plan will see approximately 175 white-collar executives leaving their positions over the next 30 days. The eliminations will include executive vice presidents, senior vice presidents and vice presidents.
With changes in management style, CEO aims to reduce the number of hierarchy levels to facilitate clear management information for optimal decision making.
Besides executives furlough, Western Union is also intending to consolidate operations by trimming facilities. This will involve shifting of 550 operational jobs. Since these business changes will take a longer time, management views the change to take place gradually over the next year and a half. However, the company has announced it will form new operations center in Europe.
Western Union said the restructuring exercise will cost $80 million through 2011, with most of these charges falling in 2010. However, it will cut the annual cash burn by about $10 million in 2010, and $30 to $40 million in the following year and $50 million in 2012.
Western Union, which competes with Money Gram, during the recent quarter reported a 6.3% earnings decline, mainly due to higher expenses, which more than offset a marginal increase in revenues. During the first quarter conference call, management cited its full-year 2010 GAAP earnings expectation of $1.29 to $1.34. However, the extra costs related to restructuring will adversely affect margins before being earnings accretive in 2011, and forward.
After being severely affected by the economic recession over the past year, Western Union has recently benefited from a strong transaction growth in the Americas and improving international trends. Gradual improvement in revenues and pricing trends has also been witnessed.
The organizational changes announced yesterday will make the company operationally more efficient, by eliminating excess costs and aligning the management structure toward efficient decision making. The company’s strong brand name, network expertise and financial strength also augur well for long-term growth.
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