Chairman Mark Walsh says CEO Joe Galli's departure from the company is positive. But Walsh may have to go find his former top gun if he wants someone to agree with him.

Walsh made his comments Monday following the

announcement that Galli is leaving VerticalNet to become CEO of

Newell Rubbermaid

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. In the process, Galli, who was considered a catch for VerticalNet last summer, freed himself of a struggling company with a sinking stock price. During Galli's five-month tenure, VerticalNet's stock fell 91%.

But Walsh, who was proactively spreading his message Monday morning, was hearing none of that.

"I think it is a positive for both Joe and the company," Walsh said during a telephone interview in which he shared the line with VerticalNet co-founder and newly appointed CEO Mike Hagan. "Joe found his dream job, and sitting next to me right now is the person who dreamed up this company."

Bad Dreams

There are only nightmares for investors, however. VerticalNet's stock fell $1.41, or 26%, to $3.91 Monday, well off its split-adjusted all-time high of $148.38 in March. At 97% off its highs, its performance is worse than many other, though not all, business-to-business stocks.

VerticalNet's Long Decline
Its stock has tumbled over the past year

Now VerticalNet faces an incredibly daunting task -- transforming itself from an electronic middleman into a software company. It must now make this transition without Galli, the man who was responsible for articulating that new vision in the first place.

"I'm really disappointed in him," said

Thomas Weisel Partners

analyst Robert Schwartz. "I just don't think you do this to people." Schwartz downgraded VerticalNet Monday to market perform from buy. (His firm hasn't done underwriting for the company.) In his downgrade, Schwartz was joined by analysts at

Lehman Brothers




First Union Securities


Legg Mason


Robert W. Baird


Merrill Lynch

. (Of those firms, only Lehman and Prudential have done underwriting for the company.)


Analysts' uniform backlash may have been due to the zeal with which Galli seemed to be approaching his job at VerticalNet initially. Galli had spent 19 years at

Black & Decker


before joining

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in 1999 and was considered a strong manager. At VerticalNet, he quickly announced a

restructuring that split VerticalNet into three distinct business units and aggressively recruited his own management team.

Then in December he announced an

agreement to sell the company's


business unit to high-tech Internet exchange


, snaring a $107 million software contract from competitor

Commerce One


in the process. At the same time, Galli touted the company's focus on selling e-business software instead of concentrating on building trading communities on the Internet, a shift that was generally regarded as positive by Wall Street.

In public appearances and media interviews, Galli couldn't have been more bullish on VerticalNet's prospects. In October, he was quoted in

The Philadelphia Inquirer

as saying, "What


is to Seattle, we want to be to Philadelphia."

"To come to a company, recruit a significant amount of senior management and make claims in front of analysts in November that you are about to undertake major strategic changes and to walk out the door, I just don't think it's the right thing to do," Schwartz said.

The Right Thing

However, others said the move was right for both VerticalNet and Galli.

"He's an operations guy," said Ben Smith, a consultant with

A.T. Kearney

, which has done consulting for VerticalNet. "Under the old VerticalNet model, where they were going to run all of these exchanges, he was the right guy. But now, they're really looking for an enterprise software guy, an ex-


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Smith said he wouldn't be surprised if VerticalNet brought in a high-level software executive in the future.

Of course, with Galli's departure, the Street wasn't thinking about VerticalNet's next step. Instead, it was rife with speculation about what Galli knew and when he knew it.

"It can never be a positive when a CEO leaves like this," Schwartz said. "It makes you wonder what he knows that you don't."

A VerticalNet spokesman couldn't make Galli available to comment, though Walsh said Galli's abrupt departure doesn't mean he "didn't like what he saw" at VerticalNet.

What Problems?

Despite much lambasting by Wall Street analysts and the media, Walsh contends that VerticalNet's problems are no more severe than other B2Bs.

"For a while, I was giggling about the label 'the troubled VerticalNet' that was put on this company," Walsh said. "All B2B Internet companies have suffered, and when I look around, I wouldn't trade our position for anyone's."

He played up Hagan's appointment to the CEO position. As a co-founder who has been with the company since 1995, Walsh said Hagan "has his fingerprints" on all aspects of the business. Hagan was enthusiastic, too.

"I've been an operational guy, I've been the guy who's influenced the business day to day and I've been the guy involved with the 21 acquisitions that this company has made," Hagan said. "I've really been the guy behind the scenes making sure that we beat our estimates and made our numbers over the last seven quarters as a public company."

When Galli joined the company in July, he was baited by a $4 million signing bonus. Walsh said Galli returned that bonus on a prorated basis, and that there were no hard feelings toward him. In fact, always the entrepreneur, Walsh opted to look at the departure as a new opportunity for his company.

"I'm not committing to anything here, but Joe and I were laughing about it and we look forward to getting Newell Rubbermaid as a customer," Walsh said.

Surely, the words of a true optimist.