Calming The Waters10/07/2001 8:00 PM Eastern
The week after its high-profile CEO announced his resignation, Charter Communications Inc. executives hit the road to reassure investors that the company remains on track.
Charter's three top executives — chief operating officer David Barford, chief financial officer Kent Kalkwarf and chief technology officer Steve Silva — appeared at the Goldman Sachs & Co. Communacopia conference last week, touting Charter's leading position in the industry and reaffirming that the company's management remains strong.
Charter stock was rocked the week after CEO Jerry Kent announced he would not renew his employment contract: It dropped 25 percent, from $16 per share to $12.01 each. Kent cited differences with Charter chairman Paul Allen as his motivation for leaving. Kent's last day at Charter was Sept. 28.
Allen moved swiftly to make sure that Kalkwarf and Barford — who will jointly assume Kent's duties in the interim — stayed put, signing both executives to four-year management contracts last week. He's expected to do the same for other key executives.
The efforts may have paid off. Charter's stock rebounded, climbing to $14.32 per share on Oct. 4.
Though neither executive would say who else may end up signing long-term agreements, UBS Warburg LLC cable analyst Tom Eagan said in a research note that Silva and vice president of marketing Mary Pat Blake were the next likely candidates to sign long-term deals.
While terms of the agreements were not disclosed, both Barford and Kalkwarf are expected to receive modest increases in their annual salaries ($255,000 and $225,000, respectively, in 2000) and substantial stock options in the range of $11.25 per share.
Kalkwarf assured investors at the conference that he and Barford do not have the same issues with Allen and their former CEO.
"I would not have signed a long-term contract if that was an issue," Kalkwarf said. "Paul Allen has made Charter a better company."
Kent's departure is expected to cost Allen personally, because the former CEO holds put rights to private stock in Charter Investments. According to published reports, Allen is required to repurchase Kent's Charter Investment holdings for as much as $80 million.
Though Kalkwarf would not confirm those figures, he confirmed that Kent does have put rights and added that Allen also must purchase put options from the former CEOs of two other MSOs: Falcon Communications Inc.'s Marc Nathanson and Bresnan Communications Inc.'s Bill Bresnan.
When Charter bought those MSOs, Kalkwarf said, their CEOs were given the right to put back shares to Allen at a price between $26 and $27 per share, plus interest. The Falcon puts can be exercised over two years; the Bresnan puts are exercisable in a two-year period from Feb. 14, 2000, to April 14, 2002. The Bresnan puts are worth about $1 billion.
"The key thing is that the puts are to Allen individually and not Charter," Kalkwarf said. "Mr. Allen has the funding to take care of the puts."
Allen, whom Forbes
magazine ranks as the third-richest man in America, is worth an estimated $28.2 billion.
Neither executive would speculate on when a replacement for Kent would be named. Nor would they comment on speculation that Liberty Media Corp. senior vice president Carl Vogel is the front runner.
Later at the same conference, Liberty Media president Robert "Dob" Bennett — Vogel's current boss — joked that Liberty was like General Electric Co. in that other firms were raiding its management.
Bennett later declined to talk about Vogel's plans. "That's something you have to ask Carl or Charter," he said. "Carl is a great guy. If this works out to be an opportunity for him, we wish him well."
One of the biggest questions on investors' minds was what would happen to Charter now that Kent — the man given most of the credit for the company's success — is gone.
"One man doesn't make a company," Barford said. "We have the best management team in the industry. We're wide and deep with industry-leading operating results. Paul Allen and the board are firmly committed to locking up management."
Charter is also committed to continuing the growth that characterized Kent's tenure. Kalkwarf said the company should exceed its guidance of 2 million digital subscribers by the end of the year, and added that it should "comfortably exceed" the 630,000 subscriber estimates for its high-speed data service.
He said that weekly digital installations have risen to nearly 20,000 per week in the third quarter, putting the company on a pace to end the period with 1.8 million digital subscribers. High-speed data installs in the period increased from 6,000 per week to 7,500, indicating that the company should end the period with about 640,000 subscribers.
One target where the company said it would fall short — basic subscriber growth of 2 percent — is actually a plus, Kalkwarf said.
Charter, which had led the industry in basic-subscriber growth for the past several years running, noticed this year that it was spending too much money on marketing and subscriber-acquisition costs to maintain that growth level, he added.
While basic-subscriber growth for the year should fall in the 1-percent-plus range, Barford said, "our closest competitor will be lucky to get to 1 percent."
Said Kalwkarf: "We believe focusing on high-end digital and data customers is a better use of our marketing dollars. While we still believe that basic-customer growth is the best way to grow value, in going for the target we were spending too much on advertising and too much on subscriber acquisition. We still believe we will lead the industry in basic-customer growth."