Charter Communications, the nation's fourth largest cable company, didn't have to search far to fill the void created by exiting CEO Jerry Kent. It is tapping a member of its own board of directors: cable veteran Marc Nathanson.
Nathanson has been the nearly invisible vice chairman of Charter since selling Falcon Communications to Charter for $3.6 billion in 1999. While active as a member of the board, insiders say Nathanson played no active role in management. Nathanson traveled infrequently from his Los Angeles base to Charter's St. Louis headquarters.
That will change. Nathanson will join Charter chairman and controlling shareholder Paul Allen in a sort of "office of the chairman" role. The executive expected to replace Kent as president is Liberty Media Corp. senior vice president Carl Vogel. He is to report in part to Nathanson. It's not clear if Vogel will get the title of CEO.
Charter now needs a steadying hand. The company's stock dropped about 40% to $12 because investors fear that Kent's replacement won't deliver the same strong cash-flow growth.
Also, Kent's exit is gouging a deep emotional rift among Charter's seasoned managers, and Microsoft co-founder Allen is eager to keep them from following Kent out the door. All last week his financial lieutenant Bill Savoy was busy offering "stay bonuses" of up to few hundred thousand dollars to some Charter executives.
Kent announced his departure last Monday to three dozen or so senior officers and staffers at Charter's headquarters. With his contract up in 90 days, Kent had until Monday to say whether he planned to negotiate a new deal. Even though some executives had been informed over the weekend, the room was hushed.
"Nobody ever thought Jerry would leave his company," said one executive in the meeting.
"This is not easy. It's gut wrenching," Kent said. "It's like leaving a kid."
Industry executives attributed much of the problem to a personality clash between Kent on one side and Allen and Savoy on the other. In Kent's view, Charter with its consistently strong operating results was a success in Microsoft co-founder Allen's multibillion dollar portfolio of otherwise failed or troubled companies. Those include Value America, Beyond.com, Reel.com, Pop.com, Mercata and Priceline.com. Kent didn't think he was getting enough credit, and some say, he didn't defer enough to Allen.
"They wanted a certain level of respect, and Jerry wasn't willing to give it," said one industry executive.
Allen owns a near majority of Charter's equity, a clear majority of the shareholder votes and is chairman.
Insiders say they clashed mostly over how Allen wanted to use publicly traded Charter to work with other companies in which he had invested, such as carrying women's network Oxygen or having Charter's Los Angeles-area systems co-operate with overbuilder RCN.
"Paul would make promises to other companies without telling us," said one Charter executive. "They'd come to us and say, 'Where's our carriage'?"
The whole reason Allen pumped almost $4 billion into Charter was to realize his vision of a "Wired World" with cable as the backbone. But he became frustrated at integrating products into Charter, and at least partially blamed Kent.
"Jerry totally got his back up and bluntly said, 'I have to protect the interests of my shareholders,'" said one industry executive.
But Kent did cut plenty of deals for such Allen-backed operations as TechTV, and the now nearly bankrupt high-speed Internet provider High Speed Access and interactive portal Digeo. But such related-party deals caused friction.
Although it was never disclosed to shareholders, Kent has a "put" on a pool of around four million Charter shares held by Charter Investments, the company Allen bought from Kent and his partners to get Charter's systems.
Sources said Kent may sell his interest in those shares at around $21 per share, as much as $84 million, or nearly double the current trading price. (Of course, the price is now low because Kent quit.)
Charter co-founders Howard Wood, a Charter director, and Barry Babcock own a piece of Charter Investment and have a put as well.
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