Charter CEO Resigns, Is Replaced
In the latest upheaval at the nation’s third-largest cable TV provider, Charter Communications Inc. replaced its chief executive Tuesday.
Carl Vogel resigned three years into his four-year contract, which would have expired at the end of December.
Taking the place of the veteran pay-TV executive is Robert May, 55, a Charter director who doesn’t have much experience in the industry but is credited with reviving HealthSouth Corp., the nation’s largest operator of rehabilitation hospitals. May will serve as interim CEO until a permanent replacement for Vogel can be found, Charter said in a statement.
Analysts said there was a need for new blood at the top. Under Vogel, the company missed financial targets and lost subscribers to satellite TV rivals in 10 of the last 11 quarters.
May vowed to focus on operations and said he hoped to more aggressively roll out services, including telephone and video on demand, that other cable operators have used to curtail the migration of subscribers to satellite.
In a conference call with analysts, Lance Conn, a member of Charter’s board, said the company was now better positioned for long-term growth.
Charter’s “performance hasn’t met your expectations or ours,” Conn said. Conn, head of the board’s strategic planning committee, is an executive vice president of Vulcan Inc., the investment company owned by Microsoft Corp. co-founder Paul Allen. Allen is Charter’s chairman and controlling shareholder.
Many on Wall Street worry, however, that Vogel’s departure will bring a new round of management turmoil at the St. Louis-based cable provider. The turnover of the last year has left Charter not only without a permanent CEO but also a chief operating officer and a permanent chief financial officer.
“Despite the company’s vow to redouble efforts to improve operations, we believe this is even more difficult, given major vacancies in Charter’s senior ranks and the potential departure of other senior managers loyal to Vogel,” said Alan Bezoza, a cable industry analyst at Friedman Billings Ramsey.
Many analysts also continued to be concerned about Charter’s crippling debt. Charter is worth less than $600 million but has more than $18 billion in debt from an acquisition spree by Allen in 1999 and 2000.
Charter’s stock value plunged in late 2001, shortly after Vogel’s arrival, amid a federal investigation of its accounting practices.
Shares that had traded at more than $24 in mid-2001 fell to below $1 in 2003 before rebounding slightly. Charter shares Tuesday fell 13 cents, or 6%, to $1.92 on Nasdaq.
Analysts and industry insiders said Vogel’s departure came from friction with Allen about how best to turn things around at the cable giant. They said Vogel had grown frustrated when the Microsoft billionaire refused to infuse the cable company with new equity, preferring instead to renegotiate and extend the maturities of its debt.
Allen gave Charter about $300 million in 2003 to avoid a loan default but hasn’t budged since, despite Wall Street’s urgings.
“Paul has to bite the bullet and fix the problems he’s had now for some time,” said one source who has worked closely with Allen. “He can’t make much headway until he does.”
Insiders said Vogel was also burned out after the prolonged accounting investigation. In April 2003, Charter said it had overstated its revenue and cash flow for 2000, 2001 and the first three quarters of 2002.
Three former Charter executives have pleaded guilty to conspiracy charges related to a scheme to inflate subscriber numbers in 2001 and 2002. A fourth, the company’s former chief financial officer, awaits trial.
The company itself was not charged in the case but has agreed to pay $144 million to settle shareholder lawsuits.
Although May lacks much cable TV background, he brings some experience with federal investigations and turnarounds. May, who joined the board in October, was the interim CEO of HealthSouth from March 2003 to May 2004 and was instrumental in reviving the company amid an alleged $2.7-billion accounting fraud scandal.
May took charge after HealthSouth founder Richard Scrushy left and regulators accused the company of fabricating profit to meet Wall Street earnings estimates.
From 1996 to 1998, May was chief operating officer of Cablevision Systems Corp., the largest cable operator in the New York area. Before that, he held senior positions at FedEx Corp. for a decade.
May said Charter was well-financed for the foreseeable future, after raising about $1.4 billion in the bond market late last year partly to refinance its debt.
Wall Street had hoped that Allen might buy some cable systems from another operator, such as Adelphia Communications Corp., which has put itself up for sale. Allen has long coveted Adelphia’s large cluster of subscribers in Los Angeles.
But sources said Allen was unlikely to make huge investments in cable. Although Adelphia bids are due at the end of the month, May said Tuesday that “at the moment, we’re just observing the process.”
