Pacnet Calls Time on Its CEO
Struggling Asian carrier Pacnet finally gave up on long-serving CEO Bill Barney this week, firing him and appointing CFO Brett Lay as his interim replacement.
Barney's sudden departure appears to reflect the frustration of the operator's owners, who have been seeking a return on their investment either from a public listing or a trade sale.
The board of the privately held international and wholesale service provider, headed by new chairman James Ousley, ousted Barney earlier this week, shortly after announcing a regional optical breakthrough. (See Pacnet Appoints Interim CEO and Pacnet, Infinera Demo 500G Super-Channels.)
Staffers told Light Reading that the news came as a surprise, though the writing had been on the wall for some time.
Ratings agency Moody's Investors Service noted in March, when reviewing the operator's 2011 financials, that it had "concerns" about Pacnet's operating performance and its ability to increase revenues.
It recorded a negative ratings outlook and warned that Pacnet's B1 rating could slip if operating income did not show "meaningful quarterly growth."
Barney, whose genial and loquacious presence has been a fixture at Asian industry conferences, was appointed nine years ago to head up what was then called Asia Netcom. Formed from the rubble of bandwidth-bubble casualty Asia Global Crossing, Asia Netcom was bought by Chinese telco China Netcom Corp. Ltd. (NYSE: CN; Hong Kong: 0906), intending it to be its offshore services arm. (See China Netcom Acquires Asia Netcom.)
China Netcom sold it in 2006 to three UK-based private equity firms -- Ashmore Investment Management, Spinnaker Capital Group and Clearwater Capital. The new owners then combined Asia Netcom with Singapore-based ISP Pacific Internet in 2007 to form Pacnet, a regional bandwidth and enterprise services provider. (See China Netcom Sells Asia Netcom and Pacnet Opens Its Doors.)
Despite its extensive subsea cable assets, including a stake in the Google (Nasdaq: GOOG)-backed Unity trans-Pacific system, Pacnet has suffered some of the same problems that killed off Asia Global Crossing in that it has lacked the partnerships, scale and financial depth of its rivals. (See Unity Cable Ready for Service.)
It's also in a business where margins must continually adjust to the never-ending slide in bandwidth prices: Pacnet posted a US$23 million operating loss in the 2011 fourth quarter on sales of $134.5 million. Full-year 2011 revenues grew just 4.4 percent to $528.6 million and Moody's has warned of "significant competitive pressures" this year.
Pacnet's weak financials helped kill a planned $500 million IPO last year. Only a few years earlier, Barney had valued Pacnet at $2 billion.
Its frustrated owners have since been shopping for a trade sale. PT Telekomunikasi Indonesia Tbk. (Telkom) , the latest company linked to a possible acquisition of Pacnet, confirmed earlier this week, just before Barney's departure was announced, that it has been conducting due diligence on the operator.
A Pacnet spokesman denied the CEO's ousting was related to the board's attempts to find a buyer. Instead he said the move was aimed at "positioning for new growth opportunities" in the industry, although he declined to identify those opportunities.
Chairman Ousley said a global search is underway for a new CEO and that whoever is chosen will be responsible, with current interim CEO Brett Lay, for "furthering Pacnet's evolution into a leading regional player of cloud based data services." — Robert Clark, freelance editor, special to Light Reading