Even though your decision means that two in every five employees are on notice, you reckon that introducing the new systems will run smoothly. So you signal to the City that the division's profits will grow strongly from a low base.
Then reality hits. The effect on the business of two out of five workers being surly and disruptive is as bad as common sense should have told you. So hurriedly you issue a profits warning and put on your confident, no-nonsense, tell-it-like-it-is persona to face down the City's analysts. Despite that, your company's share price drops 8 per cent on the day and is now 30 per cent off its 12-month high. A year ago you sacked the group's IT chief because he could not sort out the technology issue. Now it's your job that's on the line.
This is a reasonable précis of the mess that Richard Glynn, the chief executive of Ladbrokes (LAD), the bookmaker, has got himself into. Roughly speaking, his plan to resolve Ladbrokes' poor position in internet and - especially - mobile betting was to deepen the company's relationship with Playtech, the specialist in online gaming software. But that meant about 220 of the 550 employees in the digital division were put on notice. Added to that potential for disruption, the division has had to cope with running its mobile operation on two platforms simultaneously and from centres in both the UK and Israel, from where Playtech operates.
The wonder of all this is not that Ladbrokes says that digital profits will be badly hit, but that only seven weeks ago it was still insisting the integration was progressing well. Having steered the City into thinking that the group's digital side could make about £28m in operating profits in 2013, Mr Glynn has now decided that digital will make somewhere between £10m and £14m, and possibly nothing in the second half.
Still, Ladbrokes' financial position looks sound - as it should for a group that had a big rights issue four years ago and hasn't touched the proceeds - so its bosses can make defiant noises about the dividend. This, they say, will at least remain at 2012's 8.9p for 2013 and 2014. That will cost about £82m a year - less than the free cash that Ladbrokes might generate, even with no contribution from the digital side. So the payout, which yields 5.3 per cent with the share price at 169p, looks safe.
However, that's only a partial comfort. We might start with the backstop scenario and assume that Ladbrokes can do no more than generate a perpetual dividend of 8.9p. In that case - for Bearbull anyway - its shares are worth barely more than £1. To justify even the current share price, we need some dividend growth - 3 per cent a year or so over the long haul; and to get it clear of 200p again, obviously rather more.
Is that likely? Maybe. Think of Ladbrokes' shares as a claim on the solid performance of its bricks-and-mortar estate, which - although it has been written off time and again - continues to churn out the bulk of group profits. On top of that, the shares contain a call option on the eventual success of the mobile part of its digital side. Currently that's deeply in doubt, so the option's value has plummeted and sucked value out of the share price. But option prices are volatile and it won't take much good news for that call to be worth lots again. Beyond that, failure to sort out the digital side will cost Mr Glynn his job, but it won't break the company (although it might cause the group to be broken up).
That's one reason why I have not dashed to sell the Ladbrokes holding in the Bearbull Income Portfolio (view Bearbull's income portfolio) even though the price has dropped below the stop-loss level. The other reason is an absence of alternatives - for which we can only blame my indolence.
