Out of Disorder May Spring Opportunity

Back in February Liberum selected Parlux Fragrances, Inc. (PARL - NASDAQ) as one of 13 - CEO related changes out of a total of 204 CEO changes for the month investors should re-examine for investment potential. Parlux, for a number of months prior to February, was engrossed in a fight with activist investor Glenn Nussdorf (who controlled 1,912,629 direct shares of the firm) and the company's CEO at the time Ilia Lekach (who controlled 2,182,949 direct and indirect shares of the firm) over board control and the direction of the firm. Lekach after a great deal of effort folded his cards in February and agreed to a 50-50 arrangement for board control as well as his resignation as Chairman and CEO. Nussdorf agreed that for two years he would not make any proposal to acquire Parlux, unless the offer includes all shares at a minimum of $11 per share.

The ongoing fight between Nussdorf and Lekach manifested itself while the company was facing possible de-listing from NASDAQ. The firm has so far managed to weather the controversy and appointed Neil J. Katz as interim CEO upon Lekach's resignation in February. Katz, an ally of Nussdorf, was also considered for the top position as part of the overall CEO search conducted.

Katz was formally appointed CEO and Chairman on May 14. He has over 30 years experience in the beauty business and has served as President of Liz Claiborne Cosmetics and President of Revlon Beauty Care Division. Parlux, despite continuing weak performance, may manage to find its focus. Today the company announced another major appointment, the promotion of Raymond Balsys to the role of chief financial officer, replacing Frank A. Buttacavoli, who will remain chief operating officer. The company said the separation of the COO and CFO roles will allow Buttacavoli to work closely with CEO Neil J. Katz on overall planning, management, and signing new fragrance licenses.

Keep a close eye on the company's operations.

Tolerance For CEO Misbehavior Wanes

Top executives and investors take note. Geraldine Fabrikant, a New York Times Journalist, wrote an article in today's New York Times entitled, One Misstep and They're Out the Door. The article outlined how and why companies find themselves far less forgiving of top executives who misbehave then they had been in the past. For details check out the article (registration required).

Note To Our Readers

Liberum's blog was recently noted in Business Week's Talk Show column . Just scroll down to Blogspotting - Watch the Revolving Door.

Management Turmoil at Presstek Turns to New Mix

Presstek, Inc. (PRST - NASDAQ), a manufacturer and marketer of digital offset printing solutions has been floundering for some time. On top of it middling performance, the company found itself mired in an SEC investigation of its accounting methods. Following these continuing problems, Presstek underwent a series of top management changes over the last few months concluding with a new CEO.

First, in March, Moosa E. Moosa, the firm's CFO resigned and was replaced by Jeffrey Cook, a former CFO and CIO of Kodak's Polychrome Graphics. Then in early April, the firm's SVP of Operations , William Keller, who had been in office for less than one year, resigned to pursue a career in private equity. The biggest change took place yesterday, when it was announced Edward J. Marino, the director, president and CEO would be leaving the firm to pursue other opportunities. In his place, the board selected Jeff Jacobson. Jacobson who was one of the founding managers of KPG , a joint venture between Eastman Kodak Company and Sun. He was most recently the chief operating officer of Kodak's Graphic Communications Group and a Vice President of Eastman Kodak.

Jacobson's decision to take the job, says a great deal. While he is being offered a highly incentivized package (he received a sign-on bonus of 300,000 shares of the company’s stock, and has an option to purchase another 1 million shares) which will require him to perform to make the new job worthwhile, his acceptance indicates he thinks there is real potential for the company. He is a strong choice. He knows the business and can be expected to bring a great deal to the table. He should work well with the new CFO, Jeffrey Cook who also had been at Kodak.

Going forward keep your eye open for a possible turnaround at the company.

Falling on Your Sword - A New Option for CEOs?

Earlier today David Neeleman, the entrepreneurial founder and CEO of JetBlue Airlines (JBLU - NASDAQ), announced he was stepping aside to become non-executive chairman of the board. Neeleman, unlike most corporate CEOs, accepted responsibility for JetBlue's Valentine's day disaster back in February which cost the airline over $40 million but much more in bad publicity. On Valentine's day a major storm, which the company initially attempted to weather by avoiding flight cancellations, ultimately turned into a nightmare for customers and the company resulting in major delays, flight cancellations and more. Soon after the problem, Neeleman went into crisis mode. He was everywhere - TV, print and TV ads, announcements, advertisements, radio - accepting responsibility for the snafu and promising it would not happen again. He followed his announcements of contrition with a passenger bill of rights.

Ultimately, the buck stopped at Neeleman's desk, and unlike Alberto Gonzales, U.S. Attorney General and corporate and business leaders, he decided to resign. Neeleman's successor Dave Barger, the current president, was chosen immediately. In a prepared statement Neeleman stated, "As chairman of the board of directors, I will focus on developing JetBlue's long-term vision and strategy, and how we can continue to be a preferred product in a commodity business."

Neeleman so far is a rarity in America's corporate world, a CEO willing to accept responsibility for when things go wrong and at the same time pay the consequences. The real question is whether he has started a new trend or whether his decision to resign was just an exception to the rule. The implications from an investment perspective could be important if a new trend is evolving.

Stay tuned.

For more on the change:

AP Article
Washington Post Article
TheStreet.com
Bloggingstocks

Year Old Biotech Pick Demonstrates CEO Significance

In March 2006 I selected a number of companies that experienced a CEO change that I suggested investors re-examine as possible investment possibilities. One that stood out was Allos Therapeutics (ALTH - NASDAQ). On January 16, 2006 Allos Therapeutics, a health and security imaging equipment manufacturer, announced that President, Chief Executive Officer and Chief Financial Officer Michael E. Hart, had notified the Company's Board of Directors of his intention to resign his positions once a successor CEO was named.

Just two months later, Allos announced the appointment of Paul L. Berns as the Company's President, Chief Executive Officer and a member of the Board of Directors. Berns brought close to 15 years of pharmaceutical industry experience to Allos. He previously lead Bone Care International, Inc. from June 2002 until its acquisition by Genzyme, Corp. in July 2005. During his tenure at the firm revenues increased nearly 14-fold, the company became profitable and market capitalization increased from approximately $40 million to a sale value of $719 million. Prior to joining Bone Care International, Inc., Berns held senior management positions at Abbott Laboratories, BASF Pharmaceuticals, and Bristol-Myers Squibb Company.

Berns was an extremely solid appointment for a struggling biotech seeking to find ways to grow and get its products approved by the FDA and into the marketplace. Berns, because of his previous experience and talents was the type of executive capable of hitting the ground running and making the necessary corporate adjustments to help the company succeed over the long term. So far, Berns has been good for the firm.

Product & Scandal Plagued Medical Device Maker May Have New Lease on Life

Cyberonics (CYBX - NASDAQ), the troubled medical device manufacturer that produces implantable medical devices that treat epilepsy announced the hiring of Daniel J. Moore, a senior marketing executive from Boston Scientific to be the company's new CEO. Moore will replace interim CEO, Reese S. Terry, Jr. who will return to his position on the board of directors.

Cyberonics going back to June of last summer found itself embroiled in the growing options backdating scandal. Many of the firm's top executives over time were forced to leave. The last major executives, the company's CEO (Robert Cummins) and CFO (Pamela Westbrook) resigned last November after an internal investigation found that unnamed insiders had incorrectly reported the dates of company stock options. While these problems were going on, the company after initial approval from the FDA for Medicare reimbursement had a major setback on the use of its newest implant device designed to assist people with severe depression. The FDA reversed its decision to allow the product to receive Medicare reimbursement. The reversal, plus the options backdating scandal was taking place around the same time that activist investor, Carl Icahn became involved. In September of 06' activist shareholders insisted it was time to change some of Cyberonic's board. After the company initially fought the request, in January activists succeeded in getting three of their own on to the board.

During this entire time period the company's stock has been on a roller coaster primarily in a downward direction. The latest appointment of Daniel J. Moore is just what the doctor ordered. There is a chance that Moore with his marketing background and understanding of the medical device business is just the kind of executive needed to help right the ship.

Investors need to stay tuned and watch what moves Moore and the company's board make over the next few months.

Is a New CEO Evolving?

Alan Murray, the well-known Wall Street Journal columnist as well Liberum think so. Recently Murray published a new book entitled, Revolt in the Boardroom published by Harper Collins. Murray, who seems to be in agreement with Liberum Research contends that CEOs and boards are more and more being forced to alter their roles as a consequence of previous corporate scandals (Enron), increased pressures for greater corporate governance (Boeing), a growth in the independent power of corporate boards (HP) as well as outside pressures from activist shareholders (Home Depot).

The book is worth a read. It can be useful to investors in understanding the changing roles of CEOs and corporate boards and what those changes might mean mean from an investment perspective.

For more:

Watch Revolt in the Boardroom video clip on CNBC
After the Revolt, Creating a New CEO - WSJ (subscription)
Cornered in the Corner Office - Businessweek

Novell - A Contrarian View

June of last year had a large number of CEO related changes I recommended investors re-examine for investment possibilities. I recently reviewed two June 06' picks in the blog, International Flavor & Fragrances (IFF - NYSE) and L3 Communications (LLL - NYSE). Another large company selected last June was software laggard Novell (NOVL - NYSE). Novell seemed to have been past by its competition for awhile and was viewed by many as an industry tortoise who could no longer compete in the race.

Back in June, the company after continuing poor results, along with growing outside pressures replaced its CEO, Jack Messman with the company's number two man, Ron Hovsepian. At the time of his selection, Hovsepian was the President and Chief Operating Officer. Many analysts and people familiar with the industry were skeptical another CEO would solve the enormous problems facing Novell. I saw Hovsepian as an excellent choice, who had a reasonable chance to make a difference at Novell over the long-term. He had three years at Novell where he moved up the corporate ladder rapidly and over seventeen years at IBM.

Hovsepian had a good combination of skills to bring to bear for the position. He understood Novell's business model and product base and more importantly, he knew how to deal with customers and the market. Messman was more an "engineer personality" and just was not able to easily articulate what he planned to do or how to work with customers. He ultimately failed to get the company to address the serious issues it had been facing. Neither Messman nor the previous CEO before him, Eric Schmidt were able to put the company on a sustained growth path.

Hovsepian, who has been making great strides since his promotion to the top, has yet to get it exactly right but he is moving in the right direction. So far, what he has accomplished has not impressed too many on Wall Street but he seems to be making the right moves. He has continued to cut costs, he has focused his efforts to make Novell a player in Linux for the enterprise taking a somewhat different strategic approach to Linux than that by Red Hat, its major Linux competitor. He was in charge when Novell began a controversial Linux partnership with Microsoft. In essence, Hovsepian has focused his efforts on the customer and if time manages to remain on his side, his latest prediction that 2008 will be the firm's boon year may actually come to fruition.

Keep watching Hovsepian and how he is managing Novell.

More on Novell:

May 7 - CBS News - Dell Joins Microsoft, Novell Alliance
May 7 - Endgaget - More on Dell Joins Microsoft, Novell Alliance
May 7 - BloggingStocks Take - More on Dell Joins Microsoft, Novel Alliance

Knee Replacement Firm Promotes CEO Replacement From Within

May 1, Zimmer Holdings Inc. (ZMH - NYSE), an orthopedic implant maker, announced the promotion of David C. Dvorak to replace Ray Elliot. Elliot, who was with the firm for nearly twenty five years, announced late last year his plan to retire. The company immediately initiated a search for his replacement. Elliot, who has been very successful in running the company managed to build a top-notch management team. The stock dropped nearly 2.5% on the day of the Dvorak announcement but I believe the appointment should work out for the company.

Dvorak, a lawyer who has had experience in a number of areas within and outside the firm appears to be a solid choice. He is forty three years old and joined Zimmer in December 2001 following the spin-off from Bristol-Myers Squibb. He has moved up through the ranks quite rapidly. Prior to his promotion to the top job, Dvorak was group president global businesses and earlier served as the company's general counsel. Before joining Zimmer, he was Senior Vice President, General Counsel and Secretary for Steris Corporation, a medical products sterilization and contamination prevention products and services firm. He has also practiced law where he focused on corporate law, securities and mergers and acquisitions, all areas of major importance to an orthopedic device maker.

I expect the transition overall to be rather smooth. Keep an eye on Zimmer as Dvorak gets his feet wet and becomes more comfortable in his new position.