Wall Street Tepid To Insight CEO's Ouster

Shares of the Tempe, Ariz.-based VAR's stock fell 4 cents per share, or 0.3 percent, Tuesday after the company announced that Fennessy was out and former Tech Data President Tony Ibarguen was in as interim CEO. By contrast, several other channel companies posted stock gains today and both the Dow Jones and Nasdaq were up 0.6 percent and 0.9 percent, respectively.

Part of Wall Street's tepid response could be due to the fact that Fennessy will receive a $4.5 million severance package, a figure that could increase based on Insight's performance this year.

Matt Sheerin, managing director of electronic supply chains at Thomas Weisel Partners, noted that Fennessy's package is in addition to several million dollars going to other departed executives in the last few years.

"[That's] a hefty amount relative to the company's market cap," Sheerin wrote in a report on Insight Tuesday.

On a conference call with analysts, Tim Crown, Insight's co-founder and chairman, wouldn't detail the specific reasons behind Fennessy's departure. But his comments about the need to improve organic growth and operational performance made it clear that the board thought Fennessy hadn't done the job in that regard.

"The board is focused on maximizing opportunities going forward. We felt a change was needed to maximize those opportunities going forward. Looking back, there's not individually one item that would have caused that [change of CEO]. We think operational excellence has not been hitting on all cylinders. Going forward, that's a big focus for the business," said Crown.

Crown noted that Fennessy helped Insight grow from $2.8 billion to $4.8 billion in the almost five years he was CEO. But much of that growth came from acquisitions and both Crown and Ibarguen made it clear that organic growth from existing operations is a key focus going forward.

"We're really focused on internal execution. Acquisitions are not on the mind of the board right now. The [new CEO] needs to have a proven track record of performance, from an operational and shareholder perspective. We need to balance that and figure out who is best to take the business going forward. We definitely prefer someone from the industry. We feel it's one of those things where the learning curve is significant. Industry experience is a huge plus."

Insight's shares closed at $19.90 the day Fennessy joined Insight, Nov. 15, 2004. They closed at $11.88 last Friday, a 40-percent decline during his tenure. By comparison, Nasdaq fell 3.5 percent, while Dow Jones declined 10.5 percent during those same periods.

A year ago, Insight's stock was at $15.91 per share before Wall Street collapsed, but it rebounded lately from a low close of $2.06 on March 6.

Two other channel executives said Insight's struggles to penetrate the SMB market, particularly as enterprise spending has dried up in this economy, may have led to the board's decision to seek another CEO.

"They're so closely tied to the enterprise that it wouldn't surprise me if their shareholders, their board required a change, just like what would happen at GM or any other large company with those results. They may feel he was the guy that got them through great growth, but not the right individual to get them through the downturn," said one distribution executive.

A vendor executive also said Insight's SMB sales are struggling tremendously and they've focused too much on their software business.

"Lots of vendors are pulling back support and investment," said the executive.

Crown said Insight will take its time searching for a permanent CEO, given Ibarguen's ability to handle the job on an interim basis.

"The beauty of the situation is our hair's not on fire. Tony is an extremely competent executive," Crown said, adding that Insight will look at internal and external candidates and that the new CEO will decide whether a president/COO fits into his management structure. Ibarguen's comments to analysts were brief, but he said Insight would look to beef up its offerings in SaaS, virtualization and remote managed services.

"We will look to accelerate growth of higher-margin services. Next we will focus on penetrating into SMB and public sector," Ibarguen said.

Ibarguen also said no immediate management or portfolio changes are coming, but he couldn't rule out future changes.

"It's too early to say anything needs to be fixed. I'd just assume [we] take the next few weeks to learn a lot more about the structure and how it works," Ibarguen said on the analysts' call. "The great thing about the technology industry over the years is you get feedback pretty quickly on if you have the right set of offerings or not. As I dig in, that's something we may be looking into. At the moment, we believe we have a good balanced portfolio of offerings that we'll look to cross-sell into our large customer base."