Stocks/Earning

Troubled LodgeNet Offers Double to New CEO

10/01/2012 3:25 AM Eastern

LodgeNet really wanted to land Rich Battista as its CEO — so much so that its incentive plan could leave him as one of its largest individual shareholders.

Battista, a former Fox National Cable Networks executive and the architect of Gemstar-TV Guide’s $2.8 billion sale to Macrovision [now Rovi] in 2008, signed on as CEO earlier in September.

Battista replaces Scott Petersen, who resigned as CEO of the troubled provider of video and broadband services to the hospitality and health care industries in June, after 25 years in various roles at the company.

Battista is a savvy executive known for his turnaround skills. And LodgeNet in August announced its intention to investigate its strategic alternatives, including a sale. Whatever strategic choice he makes, Battista’s first order of business should be getting the troubled service provider back on track.

“The company is in somewhat of a perilous situation,” Noble Financial media and entertainment analyst Michael Kupinski, who followed LodgeNet but dropped coverage of the stock earlier this year, said.

“It’s difficult to attract a CEO in that environment,” Kupinski continued. “Given his [Battista’s] reputation, he would be at least what the company would need right now.”

As cable operators, other competitors and room guests armed with laptops and an Internet connection have encroached on its hospitality business, LodgeNet has seen its market share erode. In the second quarter, revenue declined 13% to $92.8 million and the company reported a net loss of $95.5 million.

Most troubling was the continued erosion of its hotel room base — LodgeNet saw a 12.2% reduction in the average number of hotel rooms it serves in the second quarter. LodgeNet said it expects to serve about 1.4 million hotel rooms worldwide at the end of 2012, down from about 1.5 million in 2011.

The Sioux Falls, S.D.-based company has tried to move away from reliance on TV programming and pay-per-view movies, introducing its Envision interactive platform, which provides real-time flight data, local news and weather in addition to entertainment for hotel guests, in several markets last year.

According to documents filed with the Securities and Exchange Commission earlier this month, LodgeNet agreed to pay Battista more than twice what it had paid Petersen. Battista will receive an annual salary of $800,000 and a bonus of at least $400,000 in his first year (and up to $1.6 million if he reaches certain performance goals). He will also receive 1.1 million LodgeNet shares (550,000 restricted shares and options for another 550,000 in common stock) that will begin vesting on the 13-month anniversary of his employment.

By contrast, Petersen received $890,000 in total compensation in 2011.

According to Securities & Exchange Commission documents, those stock awards were specifically set up to attract Battista and are part of a newly created 2012 CEO Equity Incentive Plan set up by LodgeNet’s board of directors “to enable the company to attract, retain and reward Richard Battista as the president and CEO of the company by offering him an opportunity to have a greater proprietary interest in and closer identity with the company and with its financial success.”

While it is common for publicly traded companies to issue stock awards and options to its CEO and other top executives, Battista’s deal appears to be a specific plan created for the CEO and not a blanket deal for all top executives. For example, Petersen — who was named CEO in 1998 and added the chairman’s title in 2000 — regularly received stock options and awards, but according to LodgeNet’s proxy statements, they never amounted to more than 516,000 shares.

Placing such a big bet on Battista could be worth it. Shareholders have weathered a 90% drop in LodgeNet’s share price over the past fi ve months and any lift the new CEO can bring to the stock would be welcome. The stock has risen slightly since Battista joined — it opened at 37 cents each on Sept. 11, the day he was appointed, and closed at 40 cents each on Sept. 25.

LodgeNet spokeswoman Ann Parker said Battista’s equity package was “pretty much standard” as far as executive incentives go.

If Battista exercises all his options, it will make him one of the largest individual shareholders of LodgeNet stock, second only to Internet mogul Mark Cuban, who owns 1.9 million shares in the company. (Hedge fund PAR Capital Management is LodgeNet’s largest shareholder with 5.1 million shares, or 16.75% of its outstanding stock.)

Cuban has been reducing his holdings in the company of late — according to an SEC fi ling Sept. 11, he sold about 402,000 shares of LodgeNet in August and September for a total of $186,802, reducing his holdings from 2.4 million shares in December.

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