Help wanted: Bellevue's InfoSpace needs a new CEO; founder Jain will step down as delisting looms
2002-08-01
by Cydney Gillis
Journal Business Reporter
BELLEVUE -- With profits still somewhere in the future, and the Nasdaq stock market about to boot his company from its listings, Naveen Jain is stepping aside as chairman and CEO of InfoSpace Inc.
Jain, who became an icon of the dot-com era when he left Microsoft to found the Bellevue-based Internet firm in 1996, said yesterday that he has hired a team of recruiters from Korn/Ferry International to search for his replacement as chairman and CEO.
It will be the 42-year-old Jain's second attempt to install a new CEO. The first one, Arun Sarin, who was hired in 2000, only lasted nine months before Jain, the company's biggest stockholder with a 19.9 percent stake, reclaimed the chief executive title. This time, Jain, a native of India known for his charm and iron will, plans to relinquish both his titles. He will stay on, however, as a board member and prime dealmaker for the company.
InfoSpace, which employs 725, is an Internet portal service that provides directory listings, software and transaction processing to other Web sites and wireless carriers -- without profit due, in part, to big predictions that haven't paid off in the market for wireless data services such as text messaging.
``From my perspective as the founder, InfoSpace will always be my baby. I don't need a title,'' Jain said yesterday. ``Whatever I end up doing, my commitment to InfoSpace is unwavering.''
That commitment includes making InfoSpace profitable. The company lost $492 million last year and $282 million in 2000. But, after 18 months of upheaval and intrigue at the company -- including restructuring and pulling back from InfoSpace's original portal-type business -- Jain said the time is right to look for a successor.
At the time Jain ejected his first CEO in January 2001, InfoSpace's then-president and chief financial officer -- Russell Horowitz and Rand Rosenberg -- also left. Horowitz was founder and CEO of Go2Net Inc., a Seattle Internet firm that InfoSpace acquired for $1.5 billion in October 2000 -- one of 24 mergers or acquisitions that Jain has engineered.
In a shift away from Go2Net's type of portal business, InfoSpace then laid of 250 workers in February 2001. Another 200 jobs were cut last October.
With a new management team now in place -- including Microsoft alumni Jan Claesson in charge of wireless and York Baur in charge of ``wireline'' or Web-site services -- and those two of the company's three lines of business making money, the company is stable enough to start thinking about its future.
With lots of high-tech executives looking for work in the current economic downturn, the rationale was, ``Why not look around to see what talent exists out there today?'' Jain said of his search for a replacement. ``It only helps me as the largest shareholder to keep executing on our vision.''
Jain and two board members -- Lewis Taffer and Richard Hearney -- have formed a committee to select what could be a separate chairman and CEO from among the candidates Korn/Ferry will present.
Jain said the process could take six months or a year. With $279 million in the bank and a burn rate of only $4.7 million a month, Jain isn't worried about InfoSpace's survival, so he's in no hurry.
Wall Street, on the other hand, may be -- for one reason or another.
Once called ``one of the fastest guns on the Internet,'' Jain took the company public in 1998 and once saw it trade as high as $261. Yesterday, InfoSpace shares closed at 45 cents and haven't cleared $1 since May 20. That means Jain is now under the gun to get his company's stock price up -- or get kicked out of the Nasdaq listings.
Earlier this month, Nasdaq issued a delisting notice to InfoSpace. If the company's stock price fails to trade at or above $1 for at least 10 straight days by Oct. 1, Nasdaq will no longer list the stock, which currently trades under the symbol INSP.
The company reacted swiftly. Last week, InfoSpace said it will ask shareholders to approve a 1-for-10 reverse stock split -- a proposal shareholders will vote on Sept. 12. If approved, the stock split would result in fewer shares valued at $4.50.
It's a common move to prevent delisting, but analysts say it seldom works. Jain says that doesn't matter in InfoSpace's case.
``The history of reverse splits is mixed for the reason that companies that do that are companies in financial trouble,'' Jain said. ``Here you're talking about a company with twice as much cash as its market cap.''
If the reverse split doesn't boost the stock price, ``We can always take the company private,'' he added with a laugh. ``I could personally buy the whole company.''
Indeed, he could. But with more money in the bank than the company is worth, a hostile buyout is a critical concern -- one reason InfoSpace also adopted what's known as a ``poison pill'' plan last week to repel any unsolicited takeover attempts.
No takeover bids are on the horizon. But the $279 million InfoSpace has in the bank would be prize enough to try to buy a company that, at yesterday's closing price of 45 cents a share, is valued at $139 million.
Having more money in the bank than the company is worth, notes another Microsoft alum in the wireless software business, is a dangerous formula.
``With a $150 million market cap, they're worth more dead than alive,'' said Craig Eisler, CEO of Redmond-based Action Engine Corp. ``Someone could buy (InfoSpace) and pocket the $150 million as profit.''
Allyson Rodgers, an analyst with Ragen MacKenzie, a Seattle brokerage house, thinks InfoSpace is on solid ground for now.
``InfoSpace has a strong balance sheet, a lot of cash, no long-term debt and a low cash burn rate,'' Rodgers said. ``For a tech company, those three things are positive.
Overall, she added, ``I take it as a sign that the restructuring is in place and they're ready to have someone come in and take company forward.''
The question now is: Where will that be?
Eisler described InfoSpace as a Web portal company trying to figure out what it wants to be when it grows up, because, for now, consumers aren't adopting the wireless data services that it and everyone else in the industry bet on 18 months ago.
``The company would be profitable if they blew up their wireless group,'' Eisler said. ``It's been successful as a destination portal. It defined what it means to go to the Internet and look up an address or phone number. But they've lost a lot of money in wireless.''
```Naveen led, so it must be his fault,''' Eisler said of the market's view regarding InfoSpace's losses. ``The bitch of being a CEO is that it doesn't matter if that's true or not. He's the guy who has to step aside.
``Of all the people I expected to see this press release from, Naveen wasn't one of them,'' Eisler said. ``But, instead of the press release saying the board threw him out, he had the smarts to step aside.'' |
