Thanks for all the comments. In answer to some of the questions:
They have put another layer above her - she would previously have been on the "executive" team helping with strategy etc., she is no longer a part of that.
She seems to think that her position is less important than it previously was, however, her salary/benefits have not changed.
I think that sluice44 has hit it on the head, I reckon she would be best to view it as an opportunity to learn new skills from the incoming senior manager. Still, quite galling for her to be treated like this, of course it was done without any consultation! I don't think it's a great way for the company to inspire loyalty in their staff.