Saturday, December 22, 2007

Commentary of Fran Barton (UTs CFO) - Overpaid or Underpaid

As many know, during the last shareholder meeting, I was able to meet and talk with Fran Barton, UTs chief financial officer, and Peter Blackmore, UTs COO and designated future CEO. A lot of people on the message boards think that because of this meeting with Mr. Barton and Mr. Blackmore, that I have suddenly been brainwashed and support all their decisions. While it was a good opportunity to meet with them and discuss certain issues, the final judgement on their performance is the stock price. On this post, I wanted to highlight my thoughts on Mr. Barton just because of the upcoming convertible bond and the fact that he has been with the company for over 2 years.

For those that have followed the message board for some time, they know I have singled out Fran Barton ever since he started and even made a comparisson to UTs former CFO, Mike Sophie.

People obviously don't have a good impression on any of the management based on the stock performance but Sophie was well versed with the company's operations and was even promoted to COO. But this is not a post to rehash problems with Sophie or even Barton but to discuss Mr. Barton's compensation and the critical resolution of the convertible bonds.

On top of Mr. Barton's pay in 2006, he received a "double bonus" for dealing with the internal investigations and now has a retention clause worth $10m over the next 4 years. There was even an earlier SEC filing that mentioned how important the key management to the success of the company. If you read the fine print on the bonuses, it is NOT tied to the company shareprice and the metrics are really very favorable to management (unfortunately for shareholders). It is very difficult for me or any shareholders to see the stock price near the all-time lows when their CFO is getting increasing salaries, yearly bonuses, and now retention bonuses. The "independent" compensation committee definitely is non-existent and I would love to be in management's position. Anyway, with that ugly background out of the way, Fran Barton can prove his worth to the company AND to the shareholders by resolving the convertible bonds in a way favorable to the shareholders (as he has mentioned plenty of times).

For 2007 alone, the stock price has dropped $6 or $720m in market cap. It is atleast $3 under book value with an enterprise/revenue ratio of 0.04. There are STILL over 30 million shares that are short. Even after being removed from the index where about 15 million shares exchanged hands, the number of shorts outstanding have remained very high at almost 30% of the outstanding shares. This is the immediate battleground that the shareholders are facing in the upcoming year. Barton does not have an easy job with the stock under $3 and they are in yet another "transition" period with the current credit environement and the expense intensive operations they are running. Nevertheless, they have adequate funds to pay off the entire loan or do a bridge loan for part of it. Selling part of the company by offering shares and diluting the current base is really unacceptable and not required. While the company has some cash requirements it has to maintain in China to satisfy Government requirements, they are nowhere near the financial institutions here that need to maintain triple A ratings and capital reserve requirements. Most of their $500m in cash over the last couple of years have been earning interest at 1.9%!

Going forward, the company will report financials for Q4 2007 and give their estimates for 2008. The outlook for 2008 will determine short term cash requirements and vitale for short term credit. This is where Barton's worth will be tested. He single handedly can resolve the CB issue by moving the timeline away to a much better credit situation. The shorts will not have the shares they are counting on to cover their positions. It will not dilute the current share price. On a side note, the other institutional longs that have gotten into redemption situation with owning UT should be in much better situations as well. It seems "obvious" to shareholders on what needs to be done.

Back to Fran Barton's compensation. Goldman Sachs CEO Lloyd Blankfein will get $68.5 m in bonuses while other CEOs will forgoe any bonuses. I would definitely like Mr. Barton's compensation tied to the shareprice but that is wishful thinking. Mr. Barton can prove his worth and more with the correct resolution of the convertible bond. We shareholders can talk about operational performance, iptv, window dressing, etc but the shareprice in 2008 is going to be driven to a large extent by the CB.

Mike Sophie raised a lot of money and did a lot of good for the company but that was during more favorable times. Fran Barton is faced with a much tougher scenario BUT a lower shareprice comes with much lower expectations and can be seen as a springboard to outsized gains. The next shareholder meeting with management will either be a major celebration or an even bigger train wreck. I hope I can tell Mr. Barton how underpaid he is and a job well done..........

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