Third quarter losses of $1.4 billion prompted the PSINet Inc., board of
directors to fire its president, chief operating officer and fellow board
member, Harold Wills, Thursday.
Taking Wills’ place, PSINet board chairman William Schrader named James
Cragg president of North American operations and Harry Hobbs as
international operations president.
PSINet is also discontinuing its operations with subsidiary Xpedior Inc.,
in which it has 80 percent ownership. The company expects to lose about
$664 million in the phase out.
It’s been a bad quarter for the international backbone, Web hosting and
consulting solutions provider, and officials don’t expect it to get any
better in the fourth quarter.
They blame problems in systems integration with recent acquisitions and the
dramatic decrease in consulting services this year as the result of the dot-com industry shakeup. An investment banking firm has been hired to value
and sell some of the consulting businesses PSINet finished acquiring from
Metamore Worldwide in June.
“There’s been a caution in buying in general throughout our operations,”
Schrader said. “I think it is the start of a recession, or the
continuation of a recession that started six months ago (with the
devaluation of the dot com industry). However, I believe we’re positioned
well for when the recession ends.”
Answering an indirect charge of incompetence of the former management,
Schrader came to the outgoing president’s defense.
“There’s no way we could have predicted the market would valuate the dot-coms with billions and billions of dollars,” Schrader maintained, “but
giving our company, with real assets and a solid business plan, nearly no
valuation.”
An outside agency will also help the troubled carrier conduct a thorough
operational and financial review of the company, which will be released
before the 2000 annual report is released in February, 2000.
Until the review is completed, PSINet plans to delay and renegotiate most
of the agreements it is currently under. It’s first step is to reduce its
planned capital expenditures by $100 to $200 million.
“I am committed to getting the shareholder value back in this company,”
Schrader said. “We will take all of the strategic options available and if
the board of directors and I can’t find a way to bring back value, we will
seek outside help.”
PSINet doesn’t plan to scale back on its Web hosting business, however,
because of strong gains it sees in the market. It currently has 10 Web
hosting centers open now worldwide and plan to have another four
operational next year.
Another undisclosed board member was released Thursday, and officials said
they are currently in discussions with several external candidates to fill
the two vacancies on the board.
Schrader said the directors realized it was time to refocus it strategy
after the $7.34 per share loss his company saw this quarter.
“We would like to thank Pete for his contributions and wish him well in his
future endeavors,” Schrader said of the outspoken former chief operating officer. “With the
establishment of this new organization, this is the appropriate time for
the company to move in a different direction. I look forward to working
more closely with Jim Cragg and Harry Hobbs, and I am confident that they
will continue our focus on meeting customer needs as they drive margins and
profitability.
