Cable Operators

CEO Departure Puts Charter Back In Spotlight

10/17/2011 12:01 AM Eastern

Charter Communications CEO Mike Lovett’s
surprise decision to resign in April, on his two-year anniversary
at the helm, has raised questions about his eventual
replacement and revived speculation concerning the nearterm
future of the St. Louis-based cable operator.

Lovett, an eight-year veteran of Charter — he joined in
2003, as senior vice president of operations, and became
CEO 18 months ago, after Neil Smit resigned to join Comcast
— said he would stay on to assist the transition to a new
chief through April 30 next year.

Lovett’s move came as a surprise to some analysts who
follow the company and has started a guessing game for his
replacement. Among the possible candidates: former Time
Warner Cable chief operating officer Landel Hobbs, Insight
Communications chief operating officer Dinni Jain and Cobridge
Communications founder and CEO Scott Widham.

TALENT AVAILABLE

Charter should have no trouble compiling a strong list of
candidates: Consolidation over the past several years has
left somewhat of a glut of cable-management talent. But
Charter’s current predicament could narrow the field. It is
still one of the poorer performers among the top MSOs, and
it is controlled by private-equity players who will likely want
to exit in a year or two.

Lovett’s was the third high-profile departure at the
company this year. In February, executive vice president of
operations Ted Schremp resigned, and, in March, longtime
chief technology officer Marwan Fawaz left.

While Charter searches for a replacement — it is
expected to hire an executive-recruitment fi rm shortly —
Lovett will be well compensated for his time at the helm.
Charter said in an 8-K securities filing that Lovett is eligible
to receive a package worth about $8.4 million, including a
$1 million cash incentive; an annual bonus worth as much
as $2.1 million (165% of base salary); two years of his base
salary valued at $2.6 million; 50,911 shares of stock, valued
at $2.5 million; and $172,985 in performance cash grants.

In the release about Lovett’s leaving, Charter chairman
Eric Zinterhofer said that under Lovett, “Charter has established
a solid foundation for customer growth through executing
on its long-term strategic
initiatives and assembling a highquality
management team around
a much-improved financial position.
We appreciate his many contributions
to the success of the
company and his willingness to
assist in an orderly transition.”

Lovett said in the statement: “I
believe this is the right time for
me to move on to the next chapter
of my career.” He added that
he is fully committed to the Charter
team.

Lovett focused on growing
non-video subscribers, and the
number of data- and phone-only
subscribers rose to 673,500 from
518,200 during his watch. Last
quarter, Charter began testing
an arrangement with Dish Network
where the satellite provider
would sell Charter data and phone
service to its video customers in select markets.

But also during that time, Charter continued to
experience heavy basic-video customer losses. In the past
two quarters it has lost more than 100,000 video subscribers,
or about 2.5% of its base, compared to 1% losses for its
larger peers.

Some people in the cable financial community said that,
being a seasoned operational executive, Lovett’s management
style likely clashed with the expectations of Charter’s
private-equity owners, who might not have taken such a
long-term view of the business.

Since its bankruptcy emergence in 2009, private-equity
players have controlled Charter, and they typically seek an
exit path within three to five years of their initial investment.
Apollo Management Holdings is the largest shareholder,
with 32.4% of outstanding shares, followed by
Oaktree Capital Management, with about 18%.

Charter will reach that three-year ownership mark next
year.

“This is what happens when a big private-equity firm
takes control of your company,” one financial executive
who asked not to be named said. “Things get turned
upside down.”

L.A. AUCTION FIZZLED

The departure of the CEO could also reheat speculation that
Charter will be sold. That talk reached a peak in 2009, after it
emerged from bankruptcy, and was revived in April, when the
company hired Goldman Sachs and Citigroup to find a buyer for
its Los Angeles systems with about 377,000 customers.

Charter cancelled that auction in September, after it
could not get the price it wanted.

While Charter has several clusters that would be attractive
to strategic players like Time Warner Cable and
Comcast, a combination of tighter debt markets and conservative
strategic buyers could make reaching a deal difficult in the near term.

September