This article was originally published in The Denver Post on 11/4/2001.
Qwest CEO Joe Nacchio always had bluster.
But recently Wall Street’s been questioning whether he could generate the numbers to back it up.
Turns out, he couldn’t.
Last week, Qwest blew revenue and earnings expectations, sending Qwest stock down more than 20 percent to a once-unthinkable low of $11.97 per share.
Since its August 2000 acquisition of US West, Qwest has lost 80 percent of its market value, or more than $76 billion.
Blame it on Wall Street, which grossly overvalued telecommunications in the first place. Or blame it on the economy, which keeps getting worse. But save some of the blame for Nacchio and promises he has broken.
Here is what Nacchio said at a Goldman Sachs conference on Oct. 3, defending his company’s aggressive accounting practices and financial forecasts: “You all think we cheat and lie and steal, obviously, and therefore you trade us at a discount to what a normal company with great revenue and great growth should be traded. And I’m not going to convince you on that. We’ll just let the numbers speak for themselves on Oct. 31.”
Here is what Nacchio said on Oct. 31: “Some of you will recall that at a recent conference I said the results will speak for themselves. The reality is, they do not speak clearly for themselves without some interpretation given the current economic conditions and the effects of merger and other one-time charges.”
Nice wiggle. Too bad Wall Street doesn’t sponsor dance contests.
Nevertheless, a handful of people are very impressed with Nacchio, and they all sit on Qwest’s board of directors.
They are bright folks: Intel chieftain Craig Barrett, former Dow Chemical chairman Frank Popoff, Denver construction magnate Linda Alvarado and former U.S. Sen. Hank Brown.
I also should mention Qwest’s multibillionaire founder, Phil Anschutz, and a couple of guys who work for Anschutz, Cannon Harvey and Craig Slater.
Last week, with bad numbers on the table, Qwest’s board unveiled a new employment contract for Nacchio, granting him 7.25 million stock options. Nacchio already had 13.6 million unexercised options – which would be a staggering incentive if Qwest’s stock could only regain some of the value lost on his watch.
Consider also what Nacchio already made by cashing options: $93.5 million in 2000 and $96.7 million so far this year.
The board also raised Nacchio’s annual salary to $1.5 million, nearly double the $850,000 he made in 2000. And it set Nacchio’s annual potential bonus at 250 percent of salary.
What is Qwest’s board thinking? Perhaps it is investing in a vision that only it and Nacchio see. Or maybe it is elated just to have a stock worth $11.97, considering the sad fate of telecom start-ups like Global Crossing and Level 3.
Everyone says it was Nacchio’s idea to buy US West. Had Qwest not heeded this advice, Qwest would be teetering on the brink of bankruptcy like its competitors.
Hooray for Nacchio. But what has he done for shareholders lately? He brashly berated analysts who dared to suggest Qwest might miss its numbers, and then he couldn’t prevent Qwest from missing its numbers.
If history is any guide, Qwest will be damaged goods for quarters to come. And with its stock in the tank, the prospect of growth-through-acquisition is dimmer.
Nacchio can bluster all he wants about building Qwest into one of the few global telecommunications providers of the future. But right now the market isn’t listening.
He had it right the first time: The numbers speak for themselves.
Denver Post business editor Al Lewis’ column appears Sunday. He can be reached at 303-820-1306 or alewis@denverpost.com.
