William L. Schrader, co-founder of PSINet Inc., was one of the first to espouse in the 1980s that the lightning-speed of the Internet would someday revolutionize business communications. His prescience cut painfully close to home yesterday:
Minutes after he resigned as chairman and chief executive officer of his ailing Northern Virginia company, his biography vanished from the corporate Web site.
The company announced that Harry G. Hobbs will take over as CEO and join its board. Hobbs, a PSINet executive since 1997, was promoted to president six weeks ago after several executives resigned amid reports that the company was facing bankruptcy.
The Nasdaq stock market delisted the stock Friday, at 19 cents a share. The shares traded at 7 cents on the over-the-counter market yesterday. PSINet's stock price peaked at $59.81 on March 8, 2000.
The company has warned investors that it might attempt to restructure under Chapter 11 bankruptcy protection and that its shares might become worthless. The company also reported last month that it lost $5 billion last year, including $3.2 billion in the fourth quarter of 2000. The tremendous losses were in part due to overpaying for some of the 76 companies PSINet acquired at a feverish pace during the past two years.
"At this point, it's just who is captaining the sinking ship," said F. Drake Johnstone, an analyst for Davenport & Co. in Richmond, Va.
The Ashburn, Va.-based company is best known in the Baltimore region because it paid millions two years ago to have the city's new football stadium named for it. The company owes the Baltimore Ravens team $79.1 million for the remainder of its 20-year, $105.5 million marketing agreement that includes the stadium-naming right, according to its annual financial statement.
Schrader, 49, will continue to serve PSINet as an adviser and board director.
Last year, he was paid $1.2 million in salary and bonus, 60 percent more than in 1999, according to documents filed recently with the U.S. Securities and Exchange Commission. But he lost his stock, once worth $500 million on paper, after Bank of America liquidated the shares in a margin call last fall.
"This is hard if you're Bill Schrader. This isn't some Internet company begun in 1999. This was his baby," said Gregory E. Gieber, an analyst for A. G. Edwards in St. Louis. "But right now what the company needs is a restructuring expert, and he's not that person. It was an appropriate move."
The company said Schrader would not be available for comment.
Hobbs will focus on restructuring the company, according to a press release. PSINet also announced that Ian Sharp will chair its board of directors.
Meanwhile, Lawrence E. Hyatt, executive vice president and chief financial officer, will become chief restructuring officer to work with creditors. The board also formed a restructuring committee, with Ralph J. Swett as chairman, Hobbs and William H. Baumer.
According to PSINet, Emerald Bay Investors LLC began an unsolicited tender offer last week for less than 5 percent of its outstanding shares. PSINet said it remains neutral toward the offer because its stock will likely have no value and because of certain doubts about its ability to continue as a going concern.
Schrader was a Cornell University biology researcher before he began the company. It signed up 40 customers as the first commercial Internet provider in 1989. After going public in 1995, the company - which Schrader often described as the first "Internet supercarrier" - amassed 70,000 business accounts in 16 countries.
But PSINet failed to manage its growth, including expensive purchases of companies outside its area of expertise, analysts said.
"The chances of PSINet being a going concern are very, very limited," Gieber said. "He was the CEO, and in that sense the buck stopped on his desk. But it's not clear to me that he was the only one who has to take fault."