June 17, 2002 6:25 AM PDT
Embattled Qwest CEO resigns
During a board meeting late Sunday, Qwest directors named Tellabs CEO Richard Notebaert as the company's new CEO, the company said. Notebaert, who had been CEO at telecommunications equipment maker Tellabs since September 2000, is the former head of Ameritech.
In a statement Monday, Qwest said Nacchio agreed to serve as a consultant to the company for up to two years. In addition, Philip F. Anschutz resigned as nonexecutive chairman of the board. Anschutz remains a director and chairman of the executive committee of the board.
Analysts were mixed on the Nacchio resignation, calling it a case of too little, too late. Merrill Lynch analyst Adam Quinton noted that Nacchio is gone, but all of the company's debt stays. He also took issue with Nacchio being retained as a consultant.
"Surprisingly, coming after a period of deteriorating results, missed estimates and an ongoing SEC inquiry, Qwest apparently sees a need for Mr. Nacchio to remain as a consultant to the company for up to two years," Quinton wrote in a research note.
Tony Ferrugia, an analyst with A.G. Edwards, called Nacchio's resignation a positive move but noted that "there are many challenges ahead."
Nacchio's departure, first reported in The Wall Street Journal and The New York Times, comes as Qwest is being investigated by the Securities and Exchange Commission for its accounting practices. Qwest stock has fallen more than 92 percent since its high of almost $58 in July 2000.
Nacchio transformed the company after his arrival in 1997, Qwest said, but it noted that it was time for a CEO with more operational experience. Nacchio was more of a dealmaker, seeing Qwest through the acquisition of US West, a Baby Bell.
Anschutz said Qwest was a "very different company" when Nacchio started working there. "We had a foundation but needed a leader to bring technology and a vision to life and grow Qwest into a full-service communications company," Anschutz said.
Nacchio, 52, was the target of shareholder ire earlier this month. At the company's shareholders meeting, they complained angrily about what some called Nacchio's "outrageous" compensation at a time when Qwest's stock price has plummeted.
Qwest said in April that it had paid Nacchio more than $27 million last year, excluding stock options, which was more than six times his $4.22 million pay in 2000.
In a statement, Nacchio said he was confident about Qwest's prospects. "The company's fundamentals are strong, and it will have enormous opportunities in the period ahead as Qwest reduces debt and as the regional economy recovers," he said.
Qwest announced Thursday that it filed for permission with the Federal Communications Commission to offer long-distance phone service in five of the 14 states where it already provides local service. The telecom carrier is seeking regulatory approval to offer service in Colorado, Idaho, Iowa, Nebraska and North Dakota. It will file for permission in the nine other states in its territory during the summer and fall.
Nacchio's resignation comes two months after WorldCom CEO and co-founder Bernie Ebbers resigned as WoldCom's financial problems mounted. In recent years, both executives had built telecommunications companies to compete against established giants such AT&T and US West.
Reuters contributed to this report.
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