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Power Struggle at Level 3?

Departing chief operating officer and co-founder of Level 3 Communications Inc. (NYSE: LVLT) Kevin O'Hara may have left the company amidst a power struggle with CFO Sunit Patel, according to one analyst who did not wish to be named.

"He never got along with Sunit," that analyst says. "So obviously, there was originally a power struggle where O'Hara pushed him out and Sunit never left. Then a few months later O'Hara gets pushed out and the CFO search ends."

Because Level 3 had started a CFO search in October, Patel's reappointment added to the surprise of Monday's press release announcing O'Hara's departure. (See Level 3 COO Steps Down and Level 3 Seeking New CFO.)

The two had their "fair share of disagreements," Janco Partners Inc. analyst Donna Jaegers says. Jaegers also points out that Patel was originally on the way out partially because O'Hara was the heir apparent to the CEO position and would be able to choose his own CFO.

But after CEO Jim Crowe underwent surgery to remove a benign tumor from his pituitary gland, he became re-energized and much more involved in the operations of the company. It was then that the decision started to be made that O'Hara would be the one to leave and not Patel, Jaegers says.

In the company's statement on Monday, Crowe said the changes came because both sides "have agreed that a different perspective will be of benefit to our company."

Clearly a change was needed. Level 3 lost $1.1 billion in 2007 mainly because it struggled to integrate the many acquisitions it had made under the direction of O'Hara. (See Level 3 Reports Q4.) Its stock has lost more than 35 percent of its value since the start of 2008 as investors worry about its ability to both finance and integrate its new businesses.

Many view O'Hara's departure as an admission that the acquisition strategy, which carried so much of Level 3's growth plans, was a failure. A number of analysts have downgraded the stock to a Sell rating.

"The departure of Mr. O'Hara raises a new concern about the company's current strategy and integration, and to a much smaller degree, a CEO succession plan," wrote Merriman Curhan Ford & Co. analyst Colby Synesael in a research note on Monday as he cut his rating from Neutral to Sell.

Jaegers actually upgraded Level 3's stock, citing that the company was heading in a new direction that would benefit its financials. She's also a big fan of Neil Hobbs, who was promoted to executive vice president of operations to help fill the void left by O'Hara. Jaegers believes that the new attitude brought in by Hobbs will help Level 3 in accomplishing its single most important task of getting through the acquisition integration process.

"I've heard nothing but good things about him and have heard he's already started to execute," said Jaegers.

Level 3 declined to comment for this story.

— Raymond McConville, Reporter, Light Reading

Kreskin 12/5/2012 | 3:45:44 PM
re: Power Struggle at Level 3?
This whole episode demonstrates how the top echelon are only interested in their personal ambitions ... this company is a mess and all they can do is play White Tower games ...

That said, what Level 3 needs is less MFS holdovers and new, non-MFS blood in the top ranks.

Level 3 has a splintered culture.
materialgirl 12/5/2012 | 3:45:43 PM
re: Power Struggle at Level 3? Management squabbles aside, it seems to me that getting rid of the old CEO has to be a good thing given how poorly their acquisition integration has gone. They make even ATT look agile. Any direction has to be up.
vferrari 12/5/2012 | 3:45:40 PM
re: Power Struggle at Level 3? Of course you mean the COO. CEO is still in place.
Also, while any direction has to be up seems logical, there is still room for plenty of down if the acquisition issues do not right themselves and the company neglects to prepare for scaling in the future.
Raymond McConville 12/5/2012 | 3:45:34 PM
re: Power Struggle at Level 3? while things could of course get worse, it seems like this move should be a positive. From what we've been hearing, O'Hara was not only difficult to work with and created an awful morale around the office, but he neglected his responsibilities anyway, even taking a month long vacation during a critical part of the integration process. That alone makes O'Hara's departure sound like addition by subtraction.
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