Leonard Tow Steps Down at Citizens

Citizens Communications Co. executive Leonard Tow said last Monday he would resign immediately as CEO and would step down as chairman of the telecommunications company by the end of the year.

Tow, who had been head of cable MSO Century Communications Corp. before he sold it to Adelphia Communications Corp. in 1999 for $5.2 billion in stock and assumed debt, had headed up Citizens for about 14 years.

Citizens said that current director and former Citizens president and chief operating officer Rudy Graf will return as president and CEO on an interim basis.

Citizens has formed a search committee for a new chief executive consisting of Graf and other board members Robert Stanger and David Ward. Citizens also intends to engage an executive search firm to identify qualified candidates to fill the role of CEO.

Tow will assist Graf in the transition.

The move appears to end speculation that Citizens would be sold. In December, Citizens said it had hired advisers to explore strategic alternatives, including a sale. Two groups of private-equity firms — one headed by leveraged buyout king Kohlberg Kravis Roberts & Co. and one headed by the Blackstone Group — were created in hopes of making a bid for Citizens.

But published reports last month said the two groups dropped out of the running, claiming that Citizens’s share price, $13.15 at the time, was too rich.

Citizens also said it would issue a special $2-per-share dividend to shareholders, and would institute a regular annual dividend of $1 per common share, payable quarterly.

That news sent Citizens’ stock to a new 52-week high on July 12: the price hit $14.25 before falling back to close at $14.11 (up $1) in 4 p.m. trading July 12. The previous 52-week high was $13.54.

But credit rating agency Fitch Ratings Ltd. saw the dividend as a negative — downgrading Citizens Communications’s debt rating to junk status last Monday — because the telco will not use free cash flow (cash flow after interest payments and capital expenditures are made) to pay down debt.

Fitch estimated the special dividend will cost about $675 million and the quarterly dividend will cost Citizens $340 million annually.

After selling Century, Tow became one of Adelphia’s largest shareholders outside of the Rigas family, controlling about 27 million shares. They’re now worth a fraction of their original value.

Tow and former Citizens president and COO Scott Schneider — who resigned last year — served for a brief period as Adelphia directors in 2002. Tow heads up the official committee of Adelphia equityholders.