Published in the Current and the American Journal
Facing as many as 13 class-action securities fraud lawsuits, profit restatements, downgrades from investment rating firms and a crisis of employee morale, UnumProvident fired long-time chairman and CEO Harold Chandler and replaced him March 27 with interim president and CEO Thomas Watjen, Chandler’s right-hand man.
Layoffs and organizational restructuring are not on the table, said the company’s spokeswoman in Portland, Linnea Olsen. “We need everyone that’s here,” she said. UnumProvident, which sells disability insurance, is headquartered in Chattanooga, Tenn.
The board’s firing of Chandler “is not something that was caused by any one event,” Olsen said. Instead, it was “the cumulative effect of many things.”
Among those were a $29.1 million restated reduction in earnings for 2000, 2001 and 2002, the result of a Securities and Exchange Commission inquiry into the company’s investment disclosures.
And in the past three weeks, several investment-rating firms, including Standard and Poor’s and Moody’s, have downgraded UnumProvident stock, citing concerns the company is over-invested in high-risk companies.
The company recently sold $500 million worth of these below-investment-grade bonds specifically to placate rating agencies, Olsen said.
But the company still believes in its business plan and will continue to implement it quickly, Watjen told analysts in a Monday conference call briefing.
A crisis of confidence and leadership led to Chandler’s ouster, Olsen said. He will get $8.5 million in severance pay, roughly four times his annual pay in 2000, and $8.5 million in pension benefits.
Chandler joined Provident as its CEO in 1993, and presided over the merger with the Portland-based Unum in 1999, after which he remained CEO of the combined company. One analyst said in the conference call that she was glad that Watjen would stay on “to provide continuity,” while another expressed surprise that one architect of the company’s plan would be fired and the other would take his place.
Watjen said he would keep the plan moving, but would have a different leadership style from Chandler, who he said was less decisive, less inclusive and less communicative than Watjen will be. He said his new style would become evident very shortly, and pointed to the increased disclosures in the company’s annual report, filed with the SEC Monday, as an example of more communications. He said company employees were notified of the management change over the weekend and would be involved in further company-wide discussions in the coming days, to allow them to understand what happened.
In the coming months, UnumProvident will be “out in the marketplace” seeking to raise as much as $1.5 billion, according to a November 2002 filing with the SEC. Olsen said the company would be looking for between $500 million and $1 billion, while Watjen told analysts Monday that the figure would be between $750 million and $1 billion.
The money is not earmarked for spending but instead will be used as capital on hand to offset concerns held by investment analysts, Olsen said.
“We will continue to have investment losses,” she said. Rating agencies are therefore looking for additional capital on hand to cushion those losses, she said.
Some of the capital will come from internal processes, such as regrouping some old individual disability policies into group policies, and there may be further sales of below-investment-grade bonds, she said.
Also, inter-company loans from the insurance subsidiaries to the holding company will be repaid, giving the subsidiaries more ready cash, Olsen said.
She expects there will be a combination of stock sales and convertible bonds. “We will not be issuing straight debt,” Olsen said. Initial indications from investment banks lead her to believe the company will raise the money it needs, she said.
The company also faces 13 class-action lawsuits alleging the company committed securities fraud by failing to truthfully disclose financial performance information to shareholders and prospective shareholders.
Olsen discounted the lawsuits, saying, “it’s an annoyance.” She said many of them were filed by law firms that specialize in stock-price collapses. The last group of suits was filed after the price dropped 62 percent, bottoming out below $6 per share.
“None of those classes have been certified,” Olsen said. Without a judge’s certification that a broad class of people was harmed, the suits cannot proceed.
The company also was fined $1 million by Georgia’s insurance commissioner for violations of that state’s insurance code during the merger of Unum and Provident in 1999.
“It was a slap on the wrist,” Olsen said.
The company’s search for a new, permanent CEO will begin shortly, and interim CEO Watjen will be considered for the position, Olsen said. “We have a real sense of urgency about this,” she said.