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Will Gary Winnick's resignation as chairman of Global Crossing help the bankrupt carrier boost its image?
December 31, 2002
Nearly a year after Global Crossing Holdings Ltd.’s collapse, the bankrupt carrier’s controversial founder and chairman, Gary Winnick, has resigned (see Global Crossing's Winnick Resigns).
In a letter to the Global Crossing board yesterday, Winnick, who has been under investigation for selling off large amounts of stock as the carrier and the industry fell apart, announced he would be leaving the company today (see Global Crossing's Winnick Resigns).
Winnick is the latest in a line of top telecom executives who've left their posts as their embattled companies struggle to distance themselves from the high-flying days of the telecom boom (see Akerson Exits XO, Is Capellas Right for WorldCom?, Qwest Purge Continues, and AT&T 's Armstrong Era Ending ).
“Winnick leaving was what had to happen,” says Jeff Kagan, an independent analyst based in Georgia. “Global Crossing went from being the poster child for the Internet boom to being the poster child for scandal and fraud. It probably should have happened earlier… When scandal hits the fan, you have to get rid of everyone who was associated with it.”
Others concur with this view. “I think that it was in the cards all along,” says i2 Partners LLC analyst Andrei Jezierski. “I don’t think that there was any expectation that Gary Winnick was going to stay.”
In their statements regarding the resignation, neither Winnick nor Global Crossing CEO John Legere indicated that the company’s chairman was pushed out, but sources close to the company say that's probably what happened.
Winnick was among those execs who amassed huge fortunes despite the industry's downturn. Overall, he cashed in more than $500 million on Global Crossing stock (see 2002 Top Ten: Fat Cats). Facing dwindling demand for capacity and saddled with $12.4 billion in debt, Global Crossing filed for bankruptcy in January (see GlobalX: The Burst Bubble).
Winnick's departure doesn't seem to have taken anyone by surprise, including his company's board, which announced successors nearly simultaneously with Winnick's resignation. The board expects to elect independent directors Jeremiah D. Lambert and Myron E. Ullman, III, as co-chairmen of the board of directors, replacing Winnick and effective today (see Global Crossing Replaces Winnick).
Winnick’s exit comes less than a week after the U.S. Department of Justice concluded that it does not have enough evidence to charge Global Crossing or its former chairman with fraud in connection with his stock sales and the carrier’s bankruptcy filing (see Winnick Subpoenaed). The carrier is, however, still under investigation by the Securities and Exchange Commission (SEC), and former stockholders have filed dozens of class-action lawsuits against both the company and Winnick.
“The collapse of the telecommunications industry… has taken a terrible toll on employees and investors alike, with an unprecedented loss of billions in investments and tens of thousands of jobs,” Winnick acknowledged in his letter to the Global Crossing Board yesterday. “I deeply regret that so many good people involved with Global Crossing also suffered significant financial loss.”
In the letter, Winnick said he’d fulfilled his pledge to give $25 million of his own money to employees who had lost parts of their 401(k) savings when Global Crossing filed for bankruptcy (see Winnick: I'll Cough Up $25M). The money was deposited into an escrow account last week, he said.
The carrier wouldn’t say whether other high-ranking company officials are expected to follow Winnick out the door, but analysts say others will probably leave, too. “I wouldn’t be surprised if other long-term executives followed Winnick’s lead,” Kagan says. “It’s a changing of the guard. Anyone who was associated with the chaos of the last year over there is going to be a constant reminder… You have to get rid of the distractions.”
This move is especially important for Global Crossing as the carrier struggles to reemerge from bankruptcy. Earlier this month, a New York City bankruptcy judge approved Global Crossing’s reorganization plan, which will give Asian investors Hutchison Telecommunications (Hong Kong) Ltd. and Singapore Technologies Telemedia Pte. Ltd. (STT) a 61.5 percent stake in the company in return for a $250 million investment (see Court OKs GlobalX Reorg Plan). Global Crossing says it expects to emerge from bankruptcy in the first half of 2003.
Sources say Winnick's departure may help Global Crossing clean up its image, but they emphasize that more is still needed for the carrier to survive in the long term (see The Post-Chapter 11 Hangover ).
Global Crossing has trimmed its debt down to a mere $200 million and slashed its headcount from 16,000 to 5,350, but analysts point out that both the market conditions and the carrier's business plan are pretty much the same as they were when the company filed for Chapter 11. “They’re coming out of bankruptcy to a large extent in the same state they went in,” Kagan says.
Jezierski agrees, pointing out that at a time when the company is not even paying interest on its debt, it’s still reporting losses of $150 million a month (see GlobalX Meets October Targets). “I don’t think that [Winnick’s] departure will change that,” he says. “[Global Crossing] is still staring at a fundamentally large problem.”
— Eugénie Larson, Reporter, Light Reading
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