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Will Cisco’s Restructuring Pay Off for Investors?

When I heard that Cisco had announced that it was “streamlining” its sales and engineering organization, my first reaction was: But will it matter? Then: Do any restructurings matter?

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AP

Cisco didn’t put a number on the cost of the restructuring, but it’s a fair question: Are restructurings often too little, too late—or, from a cost standpoint, too much, too late?

While investors often initially cheer restructuring news, they may be premature.

Consider this: As of Dec. 31, 2010, according to Factset, Pfizer has spent the most of any company on restructuring—$2.2 billion. And over the past year, its stock has outperformed the S&P 500 by a small margin.

But zoom in closer: Pfizer is in a continuous mode of restructuring. Over the past 12 years, it has also spent the most of any company on restructurings—nearly $13 billion. But during that time Pfizer’s stock has underperformed the S&P by 30 percent.

Then there’s Hewlett Packard, which has spent $1.4 billion last year on restructurings, with a big move announced in June of last year. Since then, Hewlett Packard’s stock is down around 25 percent, but still—that lags the S&P 500’s 37 percent gain.

Digging deeper, I thought for sure Xerox would be an example of a company whose investors have been winners from the company’s restructurings. Its turnaround over the years has been big news, with the company spending $483 million alone last year on restructurings, according to Factset.

Still, over the past year, Xerox’s stock has lagged the index by about 20 percent.

Like Pfizer, Xerox has been in restructuring mode for years. Its first headline-grabber was announced in April 1998, with 9,000 layoffs (coincidentally, the same number announced last year by Hewlett Packard.) Since then, Xerox has spent $1.9 billion on restructurings.

The payoff? Since that 1998 restructuring, Xerox's stock has lagged the S&P by 50 percent.

If there’s an exception, it would appear to be Oracle, which over the past 12 years has spent $1.4 billion on restructurings; last year it was ranked fourth in restructurings by spending $622 million. Oracle’s stock has responded by beating the S&P, but with this twist: Its restructurings are largely tied to its back-to-back-to-back acquisitions, which dilute the restructuring story.

Memo to me: Next time take a look at how executive compensation at these companies is relative to investor return. Something tells me I already know the results.

A previous version of this story contained a typo indicating HP shares had gained in price, rather than dropped.

Questions? Comments? Write to HerbOnTheStreet@cnbc.com

Follow Herb on Twitter: @herbgreenberg

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