CEO Kent leaves Charter as stock takes pounding

Oct 1, 2001  •  Post A Comment

Last week was tough for Charter Communications, the nation’s fourth-largest multiple system operator. The week began with the sudden and unexpected announcement that President and CEO Jerry Kent had resigned his positions and his seat on the board of directors and would sell his interests in the company to Paul Allen, who is chairman of Charter’s board.
The following day, Charter issued a formal denial of “speculation about imminent merger and acquisition activity,” specifically including RCN Corp., the nation’s 11th-largest MSO. That speculation was “erroneous and unfounded,” said Kent Kalkwarf, Charter executive VP and chief financial officer. “There has been no dialogue with RCN, nor is any planned,” Mr. Kalkwarf said. “The source of this speculation is unknown to us.”
This past July, High Speed Access Corp., a broadband Internet access provider, announced that it was evaluating an offer from Charter to purchase certain assets of its cable modem business. While denying other potential transactions, Mr. Kalkwarf did confirm the High Speed Access deal, saying that it was the only potential acquisition or merger the company was currently contemplating.
The stock market reacted to the news of Mr. Kent’s departure and to the prospect of additional executive changes at Charter by driving the company’s stock down to a new 52-week low of $10.49 per share by midweek. By comparison, in early July Charter’s stock had stood at $24.45 per share, its 52-week high. By last Thursday, Charter had regained some ground on Wall Street, though its stock was still trading at around $12, still below its 52-week low immediately prior to the announcement of Mr. Kent’s departure.
As the week wore on, analysts split on Charter’s prospects, with Lehman Brothers downgrading it, while UBS Warburg upgraded the stock from “buy” to a “strong buy,” saying the cable company “provides investors with substantial upside opportunity with minimal downside risk.”
Mr. Kent had operated under an employment contract with Charter that was renewed automatically unless Mr. Kent advised the company during an annual 90-day window that he did not want it to be renewed. That is the step that Mr. Kent took, according to a Charter spokesman, who said Mr. Kent informed the company that he will pursue new opportunities and his “entrepreneurial instincts.”
Mr. Kent, who has been CEO since 1999, co-founded Charter Investment, predecessor to the current company, in 1993. His current employment contract runs until Dec. 23, 2001. In a statement, Mr. Kent called his decision not to renew “gut-wrenching.” In that same statement, Mr. Allen saluted Mr. Kent’s contribution and said the board would move “as quickly as practical” to select a new CEO.
Media and cable industry speculation held that Mr. Kent’s sudden departure was the result of conflict between Mr. Kent and Mr. Allen, who acquired Charter in 1998 for $4.5 billion, the same year he purchased Marcus Cable, which was combined with Charter and other cable companies to create the present entity.
At that time, those acquisitions, as well as AT&T’s purchase of Tele-Communications Inc. and Microsoft’s investment in Comcast Corp., were viewed as plays for better position in the high-stakes race to provide interactive TV, cable telephony and other high-tech digital services to the American public. Currently, Mr. Allen has 51 percent equity interest in Charter.
Both Mr. Allen and Mr. Kent had increased their stakes in Charter over the past year, with Mr. Allen increasing his own holdings by more than 400,000 shares in the first half of 2001 and Mr. Kent purchasing 12,000 shares in late May. In fiscal year 2000, Mr. Kent earned nearly $2.4 million in pay, of which $1.25 million was salary and $1 million was a bonus. He will remain as a consultant to Charter until the end of the year.