Level 3 Co-Founder Steps Down; CFO Patel Stays On
NEW YORK -(Dow Jones)- Shares of Level 3 Communications fell as much as 14% to hit a 52-week intraday low Monday after the telecommunications and information-services company said co-founder Kevin O'Hara is stepping down as president and chief operating officer, effective immediately.
The Broomfield, Colo., company, which sells wholesale broadband and dial-up Internet services, also said Sunit Patel will continue as chief financial officer, effectively ending its previously announced search for a new CFO.
In October, Level 3 said it would look to replace Patel with a finance chief who had more experience in operational matters. Chief Executive Jim Crowe said at the time he would try to get Patel to stay with the company in a different role, but emphasized the need for a CFO with both "operational and financial management."
However, Crowe said Monday that it became clear the company would be best served with Patel remaining as the CFO.
"I am particularly pleased that our company will continue to benefit from Sunit's broadly recognized leadership and strategic financial thinking," Crowe said in a statement.
Crowe, who worked with O'Hara for more than 20 years, said it was a difficult decision to part ways.
"At this time, however, Kevin and I have agreed that a different perspective will be of benefit to our company," Crowe said.
Neil Hobbs, currently executive vice president of sales and network services, was named to the newly created position of executive vice president of operations.
Hobbs and Crowe will assume O'Hara's responsibilities going forward. Crowe will take on the additional title of president.
UBS analyst John Hodulik said he expected O'Hara was being groomed as a future successor to Crowe, but management likely went in another direction because of the operational and integration issues the company has faced throughout the last two years.
"The loss of a high profile senior executive is never a good sign and we are increasingly concerned with LVLT's ability to hit its guidance," Hodulik wrote in a note to clients, maintaining a neutral rating on the stock.
Level 3 had been having difficulty "provisioning," or filling orders for network services it had sold. The company in October cited its inability to properly integrate recently acquired companies as the key factor.
Last month, Level 3 posted a fourth-quarter net loss of 6 cents a share and said it has cleared the bulk of its backlog of signed sales orders. However, the company said its sales rates continue to lag and it expects lower first-quarter earnings - excluding some items - than it booked a year earlier, due to a change in its incentive compensation.
Merriman Curhan Ford analyst Colby Synesael said the decision to retain Patel is an about-face and shows a "sense of disorganization at the senior level."
"Over the past few months, we believe the company realized that using Mr. Patel as the scapegoat for its problems made little sense," Synesael wrote to clients. He downgraded his rating to sell from neutral, adding the management changes and weakening economy create additional risk to Level 3.
Shares of Level 3 Communications were recently down 26 cents, or 11.9%, at $1.92, after earlier hitting a 52-week intraday low of $1.88.
-Steven Russolillo, Dow Jones Newswires; 201-938-2205, steven.russolillo@dowjones.com
(Veronica Dagher contributed to this report.)
(END) Dow Jones Newswires
Posted to the site on 10th March 2008
