Charles "Junior" Johnson reveled in his outsider status while chairman and CEO of PurchasePro.com (PPRO) . But Monday, that rebel image helped get him fired from the e-commerce software company.
At an emergency meeting of the company's board of directors held Sunday night, Johnson was given the boot. Board member Todd Bradley, a former
( GTW) executive, takes over the chairman's spot. A new CEO was not named, but newly appointed Vice Chairman and CFO Rick Clemmer, along with President and COO Shawn McGhee, are now in charge of daily operations.
Investors cheered the news, pushing shares in PurchasePro up 39 cents, or 15%, to $2.97 in Monday trading.
In a press release out Monday morning, PurchasePro gave the usual excuse for Johnson's exit: that it was time to hand the PurchasePro reins to a more experienced management team.
With his drawl and folksy demeanor, Johnson was a great dealmaker and promoter. But he wasn't much of a CEO. He inked deals with big partners like
that put PurchasePro on the map, but the execution of those deals, not to mention the company's daily operations, seemed to escape him.
Last week, PurchasePro missed the deadline for filing its first-quarter report with the
Securities and Exchange Commission
, the second time it has blown SEC deadlines. There have been concerns about the company's accounting policies and whether it can meet rather heady revenue-guidance numbers for the remainder of the year. And a lawsuit claims that Johnson stole the business model for PurchasePro, a charge the company denies. Add all that to a stock chart that shows PurchasePro's shares dropping more than 90% since February.
"The last bit of credibility with PurchasePro was worn away with the way they handled first-quarter earnings," says
analyst George Santana, who has a sell rating on the company. "I feel bad for the people who step into
Johnson's shoes because I don't know if this company makes it." Santana's firm hasn't done banking for PurchasePro.
Santana was one of the first Wall Street analysts to raise questions about PurchasePro's accounting procedures, especially the controversial practice of trading warrants to buy stock in the company for revenue. He believes Johnson's abrupt exit could be a signal that new CFO Clemmer and the entire board of directors are concerned about a possible
Securities and Exchange Commission
"The SEC has plenty of time on its hands to review things, and if PurchasePro's practices are put under the microscope, I don't think they stand up too well," he says.
Companies that use stock warrants to sweeten business deals have come under SEC scrutiny lately. Nearly two weeks ago, business-to-business auctioneer FreeMarkets was forced to
restate more than $10 million in revenue after the SEC examined a warrants deal with its biggest customer,
. PurchasePro has a huge warrants deal with AOL, which was recently repriced so that the media giant could buy them for a penny a share.
SEC accounting probe or no, analysts have little insight into just how much revenue the company expects to generate this year. The last time PurchasePro issued guidance was in March, when the company said it expected to post sales of $225 million in 2001. Monday's news throws that number out the window, but just how bad things get is anyone's guess.
"There are three things that need to get done at PurchasePro: The company must announce a succession plan
for Johnson; it must file its first quarter 10Q; and it needs to address the thorny issue of guidance," says
analyst Pat Walravens, who is looking for $119 million in revenue for the year, a figure that he's already cut in half from previous estimates. Walravens rates PurchasePro a buy and his firm has done mergers and acquisitions work for the company.
Walravens sees Johnson's ouster as a positive for the PurchasePro, especially because more experienced executives within the company seem to be finally throwing their weight around. Most notable is CFO Clemmer, a former top executive and CFO at
who actually joined the PurchasePro board in April. Before Clemmer joined, the company went without a real CFO for months.
PurchasePro used to be known as Johnson's company in more ways than one. He not only owned 20% of the company's stock, but he filled board seats and executive offices with his cronies, including business pals and in one case, a first cousin. But the steep fall in PurchasePro's stock undermined Johnson's influence. In the past few months, his ownership stake in the company has dropped to 11% because he was forced to sell shares to pay back a previous $100 million loan secured by his PurchasePro stock.
"Make no mistake, this was not an orderly transition," says Walravens of Johnson's sudden ouster after a Sunday night board meeting. "I just think there were too many lawsuits and too many mistakes."
Investors, of course, are wondering what's next. Walravens expects it will be another three to six months before PurchasePro can get its management team in order and start steering the company in the right direction. But in many ways, PurchasePro's future depends on the reaction of its big partners like AOL, Gateway and
"I think the company's partners will be in favor of Johnson's departure," says Walravens. "These partners didn't like all the bad press, so his leaving will improve the overall reputation of the company."
But Wedbush's Santana says that since many of these partnerships, especially the deal with AOL, were built around warrants for PurchasePro's once-mighty stock, a change at the top of PurchasePro's executive suite might be too little, too late.
"I think you're going to hear talk about AOL buying PurchasePro," he says, "but I would argue that AOL has already ripped all the economic value out of its deal, so for $200 million
PurchasePro's market value, it could get a much better deal somewhere else."