Something happened on the management floor at Comverse Technology Inc. (Pink Sheets: CMVT) last week. According to the company's announcement to the stock exchange, a "separation and consultation agreement" was signed with CEO Andre Dahan last Friday, under which he agreed to leave all his posts at the company and its subsidiaries at the end of this week. Dahan will act as a consultant to the company for the next three months.
It's rare for a company CEO, certainly the CEO of a $1.5 billion company, to leave all his posts suddenly and not even remain on the board. It's hard to know what went on behind the scenes that led to Dahan's immediate departure, but one thing can be said for sure: in a company in which nearly everything leaks out, Dahan's departure is one of the few events that did not leak before they happened.
Whatever the reasons that Dahan is leaving, Comverse is left with the question of whom to place at its head. After Dahan was brought in from outside, the board reached the conclusion that the last thing the company needs in its current situation is another cloud of uncertainty, and whoever takes over the helm should preferably be familiar with its activity.
So it was that company chairman Charles Burdick found himself going in the reverse of the usual direction, and being appointed CEO of Comverse Technology, the holding company that holds Starhome, Verint Systems Inc. (Pink Sheets: VRNT) (52%), and Comverse CNS, where the group's billing and value added services activities are concentrated.
Dahan leaves Comverse after nearly four years at its head, during which he faced many challenges. His achievement at the company can be summed up in relation to the goals he himself set when he took up the post in May 2007, in an interview with "Globes".
Asset sales: too little, too late
"Comverse's days as an investment bank are history" was the headline we gave that interview. "One thing for sure is that we are not a bank or an investment bank. We deal in technologies, and I don't think our investors want us to be another investment bank. We'll leave that to the people who are in those markets. There is no other example of a listed software house run as a company with holdings that have no connection with one another," Dahan said then.
Indeed, after the departure of Comverse founder Kobi Alexander, who fled to Namibia as a fugitive from the law, there really was little sense in holding the subsidiaries whose activities were not synergetic with that of Comverse.
However, in the event, Starhome, Ulticom, and Verint remained under Comverse Technology's wing for several long years more, until, last summer, Comverse began to sell some of its assets. This sale was not carried out as part of a policy outlined by Dahan, but out of necessity: Comverse got into cash flow difficulties and announced that it was examining the sale of assets in order to improve the position.
Thus, only when his back was to the wall did Dahan begin to carry out the sale of assets, and, in the nature of things, the timing was not always optimal. Comverse did sell part of its stake in Verint when the share price was at a peak, for $80 million, but another subsidiary, Ulticom, was sold for $90 million, a price that valued its activity at just $13 million, after discounting its cash. Comverse still holds 52% of Verint, which develops software for analyzing digital recordings, and Starhome, which develops software for roaming services.
Some of the complaints against Dahan relate to the huge expense, amounting to many hundreds of millions of dollars, involved in restating financial statements and republishing them, following the backdating and false accounting affair. The retstament was meant to enable the company to return to the main Nasdaq list. In that same interview in May 2007, Dahan commented on the matter, saying, "It's a substantial job, I don't want to underestimate it, but we'll complete it as soon as possible."
Asked "And what promise do the investors have there won't be any more skeletons in the cupboard, that there won't be a third affair that will necessitate a review of the financials?" he answered, "We've done some comprehensive and serious work. We didn't find anything that hadn't cropped up earlier but again, this is what we know today. I am not expecting any further surprises, over and above what we have uncovered."
Nearly four years have passed since then, and Comverse, despite the massive expenditure that has exhausted its cash, has still not been relisted on Nasdaq. It has completed the restatement of financial statements from previous years, but has yet to file financials for 2010.
Frustration and lack of innovation
Over the years, Comverse developed new products that were adopted by the market, and it is chiefly identified with the development of the voicemail box. This enabled the telephony carrier to post revenue even when one subscriber called another and received no answer. But, looking back over Dahan's period in charge, it's hard to think of any innovative development or Comverse product that heralded any real change and was adopted by the telecommunications companies. Comverse failed to spot in time the current smartphone trend, which began in 2007 with the launch of the first iPhone, and did not gear up to develop products tailored for this now flourishing market.
Dahan's departure, one might venture to wager, was greeted with a sigh of relief by Comverse's employees, who, during his years at the top, suffered from an uncertain work environment, in which the sword of retrenchment constantly revolved over their heads. Dahan laid off 2,500 employees in six waves of dismissals, so the remaining workers will no doubt breathe easier, and it could be that Comverse is coming to the end of a tough period, and to the beginning of a new one in which it will start to grow again.
Top marks for compensation package
Dahan's salary cost over the four years in which he managed Comverse totaled more than $20 million (in 2007-2009 it was $17.9 million). Besides a $1 million annual salary, this included shares, refunds of expenses, and bonuses.
Under his severance terms, Dahan will receive 80% of the bonus for 2010, a matter of some $800,000 (out of a golden parachute that will amount to millions of dollars). The goals set for Dahan to merit the bonuses are not known, but since the company has still not completed the republishing of its financial statements, has run into liquidity problems, and has seen its share price continue to drift downwards, one might ask what exactly are the goals that Dahan achieved that make him worthy of a bonus?
Dahan's legacy: failure times four
Four years in charge are enough time to leave an impression on a company, but Dahan's period at Comverse will chiefly be remembered for lack of direction, employee frustration, and a waste of the company's time and value.
One of the hundreds of talkbacks that appeared in response to the news item about Dahan's departure would appear to sum it all up well: "Let's analyze the results together: 1. Return to the stock exchange fail. 2. Cash fail. 3. New products fail. Four. Restructuring fail. 5. Personal salary outstanding."
Published by Globes [online], Israel business news - www.globes-online.com - on March 3, 2011
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