First Data Corp.’s new chief Joe Forehand is wasting no time in shaking things up within the debt-laden processing company, as indicated by the company’s May 25 announcement of the unexpected departure of three top executives, including its recently hired chief financial officer, W. Patrick Shannon.
Forehand last month took over as chairman and interim CEO after Michael Capellas in March announced plans to step down as chairman and CEO to work as a senior adviser at Kohlberg Kravis Roberts & Co., the private-equity firm that bought the transaction processor in 2007 (see story).
Some observers believe First Data is positioning itself to eventually launch an initial public offering. Forehand, who in 2001 as Accenture Ltd.’s CEO led that company’s IPO, likely will play a key role in preparing the processor for such an event. Getting the right executives in place to help him would be a crucial piece of the puzzle.
“Sudden executive turnover usually suggests there are problems, but this is most likely related to Joe Forehand’s arrival and the picks he’s making as to who’s coming and going,” Aaron McPherson, financial-services practice director with IDC Financial Insights in Framingham, Mass., tells PaymentsSource. “It’s a little quick, but it’s not that surprising.”
But an IPO is not immediately on the horizon, some observers believe. And Forehand may not yet be finished making significant changes at First Data. The company has been saddled with debt since Kohlberg Kravis Roberts took it private in a $26.5 billion deal in 2007.
Under Forehand, First Data is under pressure to cut costs, become more streamlined and “look for the next growth engine,” McPherson says, noting the economic downturn did no favors for the company’s debt burdens. “The timing (of going private) was kind of unfortunate because First Data took on all that debt and then the financial crisis hit,” he says.
Fitch Group’s Fitch Ratings on May 24 reaffirmed its view that First Data is “several years” away from launching an IPO. In a statement analyzing First Data’s debt ratings, Fitch wrote: “The company’s current debt-maturation schedule would likely necessitate an equity offering sometimes in the 2013 timeframe but not before,” based on its overall debt and cash flow. Fitch also noted this week that the debit-interchange amendment the Senate passed May 13 would have negligible effect on First Data and its Star PIN-debit network. Fitch in a May 3 ratings advisory noted that First Data has experienced “significant management turnover the past few years, including three different [chief financial officers] and two CEOs, which includes the current interim CEO.”
First Data also announced it has promoted Ray Winborne to acting chief financial officer from controller, replacing Shannon, whom the company installed as chief financial officer last September. Shannon previously served in that role at BellSouth Corp.
In related moves, the company promoted Kevin Kern to executive vice president, global operations and technology, from chief technology officer, and it dismissed Robert P. DeRodes, who was named chief technology officer in October 2008. DeRodes previously was chief information officer at The Home Depot, where he served for seven years. Grace Chen, who joined First Data in September 2007 as executive vice president for marketing and communications, also is departing.
At least three First Data executives whose tenure predates the Kohlberg Kravis Roberts takeover have survived the changes in top leadership. They include Ed Labry, executive vice president of retail and alliance services; Peter Boucher, executive vice president of human resources; and David Money, executive vice president and general counsel.