Mike Lorelli will resign as president and chief executive officer of MobileMedia Corp., the latest in a chain of events that has shareholders, industry and Wall Street wary of the company’s future.
Lorelli, who was hired in September, said he opted to leave the company, which sought him for his experience as a growth strategist but finds itself instead needing someone with the expertise to address critical operating issues.
David Bayer, chairman of the board of directors, will assume Lorelli’s title until a new CEO is hired. MobileMedia spokeswoman Karen Aidem said the company has hired a search firm to find a replacement.
“There are more operating issues than we thought we had six or eight months ago,” said Lorelli. “I think what this situation requires right now is someone that has very heavy doses of very heavy lifting in operating and cost cutting skills.”
Lorelli has a great reputation as a marketer, commented Jeanine Oburchay, paging analyst at Bear, Stearns & Co., New York. “Obviously there were things that were going on when Lorelli walked in, beyond a level he could see,” noting MobileMedia’s serious operating problems.
“The real issue is that they hired someone outside the industry,” said Michael Elling, senior telecom analyst, Prudential Securities. “His departure was not a surprise to me. Anyone who walks into that situation now has a totally thankless job.”
Oburchay said she expects anyone considering the CEO position would take considerable due diligence, and need many questions answered before stepping up. “I believe banks will play a large role” in deciding on a new CEO, she added.
“An operating person may have lessened the effect of operational problems, may have eased the situation a bit, but the problems (MobileMedia has) run into are fairly monumental,” noted Oburchay. The chief operating officer seat has remained vacant since President and COO John Kealey left in July, along with CEO Gregory Rorke and Senior Vice President of Operations Rodolfon Ploder.
The management upset enabled onlookers to catch a glimpse of the conflicts in the nation’s second largest paging carrier. Four months later, Ridgefield Park, N.J.-based MobileMedia is vacillating on several fronts. The company violated loan agreements for which it hopes to secure waivers. Errors were made in reports filed with the Federal Communications Commission regarding buildout of certain local paging stations. Following its purchase of MobileComm, MobileMedia’s customer service team was overwhelmed with incoming customer calls and the botched situation led to higher-than-average churn.
Talks with banks are ongoing, said Lorelli, and new covenants could be put in place. Overall, discussions with the banks and with vendors have been productive, he added.
It is risky at this point for MobileMedia’s bank partners to continue credit, said Oburchay. “The banks don’t know what the FCC is going to come back with, in terms of fines or revoking licenses.”
Selling its two-way licenses is an option for MobileMedia to raise capital. Oburchay said on a cost basis, these licenses are worth $100 million. “It’s a nice sum to get you back on your feet,” she noted.
“Bankruptcy is a realistic outlook, but not really a bad thing at this point.” Bankruptcy would provide an opportunity for the company to restructure finances, review current assets, put in place a new management team and buy time with the FCC, which has yet to issue any action in response to MobileMedia’s filing errors.
“I do think they can get through this,” added Oburchay.
“Can (MobileMedia) sustain itself in its current form? It doesn’t look like it,” said Elling. “If you can’t invest in your growth, your going to be overtaken. We’ve seen that with American Paging and PageAmerica.”
“If PageNet is successful with InFLEXion, I don’t know how MobileMedia hopes to survive,” under its current structure, continued Elling. “VoiceNow will pave the way for PageNet to get aggressive in text and messaging down the road. PageNet will have enormous capacity to roll out text, enhanced alpha and data services over the next several years, which has been the bread and butter of MobileMedia’s business.”
“If (MobileMedia) can’t keep up with PageNet’s price and PageNet’s capacity, they are going to lose harder than anyone else,” said Elling, noting MobileMedia’s business is concentrated in urban markets and the company has “fairly significant exposure in alpha today.”
Elling believes MobileMedia must restructure financially and strategically to stay afloat. “The best thing for the company and for the industry is to merge with another player, paving the way for some pricing and distribution channel stability.
“People inside the industry see more opportunities down the road with two way,” said Elling. “I don’t think anyone outside the industry really appreciates that.”
Third quarter results showed a net loss of $188 million, compared with a pro forma net loss of $163.2 million third quarter 1995.
Stockholders who purchased common stock between Aug. 2 and Sept. 27 filed a class action lawsuit against MobileMedia alleging it issued false and misleading statements and withheld information-related to much of the company’s current operations problems-that violates Securities and Exchange laws. The lawsuit, filed Oct. 4, is pending.
No departure date for Lorelli was specified, though he estimated it would be a few months. Lorelli said he intends to accomplish a seamless transition for Bayer to assume his responsibilities. “He and I plan to just hand over work on the right schedule.”
News of Lorelli’s departure came late Tuesday. The company’s stock closed at $1.31 that day, down from $1.69 the day before. Wednesday the stock closed at $1.44. MobileMedia’s 52-week high and low are $28 and 91 cents, respectively.
