Wall Street pans InfoSpace management shakeup

Chairman Naveen Jain will resume his role as chief executive, replacing Arun Sarin, who joined the company in May from Vodafone-AirTouch and is widely recognized as the leader and architect of InfoSpace's expanding wireless business.

Sarin, 45, said he will stay onboard as vice chairman of the company's board of directors and "help in every way possible" with the company's wireless strategy.

"Yes, this obviously means I will be less engaged in the company than I was as CEO," Sarin told analysts during a conference call. "But that's the balance I've been seeking between my work and home life."

In its press release, InfoSpace said Sarin was stepping down primarily because of family obligations. He and his family live in Northern California, making it difficult for him to stay on top of the company's day-to-day operations in Seattle.

Although Sarin indicated he planned to live in the Bay Area upon accepting the CEO post, Jain said it became apparent to everyone in the company--including Sarin--that such an arrangement was not working out.

"Employees need leadership. They need to have their CEO here 16 hours a day, seven days a week. Sometimes people need an answer in the next 30 seconds and can't wait for 10 minutes for him to answer his email," Jain said.

Sarin's decision to step down as CEO came after the holidays, Jain said.

"I came back charged up after the holidays and getting eight hours sleep," Jain said. "But Arun said he missed his family and wanted to see what he could do to change things yet still help out."

He added that the former CEO gave him a verbal assurance he had no plans to accept another job in the next six months and, therefore, would be available to meet with InfoSpace's wireless customers and contacts.

It is unclear what will happen after that six months has expired.

"He built a strong management team under him," Jain said.

The top executive team, however, has been dismanteled as part of the shakeup.

"We cold have dribbled out these changes over time, but our employees needed to see there was a leadership in place and one that wouldn't always be changing and going away," Jain said.

He added the CFO's departure was also related to problems encountered in running the financial aspects of the company from long-distance. And the COO changeover with Horowitz comes as the integration with Go2Net was completed.

Horowitz, Go2Net's founder, was given a "meaningful role" to ease those employees concerns as the two companies were merged, Jain said. Now with the companies integrated, Jain said: "We need to show we have one leader, one cause, one mission and and are one team."

Chief operating officer Russell Horowitz, who joined InfoSpace's management team following its Go2Net acquisition last year, will be replaced by Ed Belheim, who previously served as InfoSpace's senior vice president and general counsel.

Horowitz will remain with InfoSpace as an advisor and executive consultant.

Also on the way out is Chief Financial Officer Rand Rosenberg. Rosenberg joined InfoSpace from Montgomery Securities, where he was the founder, senior managing director and partner of the firm's telecommunications and media investment banking unit.

Tammy Halstead, who previously served as the company's chief accounting officer, will take on the CFO duties.

"Tammy's been with us from the beginning," Jain said during the conference call. "She built our accounting and finance team, and we're very excited to have her as our CFO."

Change may not be good
This not-so-subtle retrenchment of InfoSpace's original management team raised a few eyebrows in the analyst community.

"Arun Sarin has an extensive background in the wireless sector," said Keith Bachman, an analyst at ABN AMRO. "He's now elected to take less of a role in the company. Having less commitment from him is a cause for concern."

Merrill Lynch analyst Virginia Genereux said in a research note to clients that she believes the company loses "critical management and industry experience" with the diminished roles of Sarin and Horowitz.

Jain said the company wasn't actively searching for a new CEO but wouldn't hesitate to hire a qualified candidate.

"I love Arun to death," Jain said. "I'm hoping that he'll chill out for a few months and then come back to Seattle."

That, according to at least one analyst, seems highly unlikely.

"They are consolidating their management team into the old InfoSpace," said Matt Adams, an analyst at Epoch Partners. "The old guard is back. There are a lot of strong personalities on this management team. But they've needed those strong personalities to get where they are now."

Earnings could be affected
Adams said the revamped management team might also be a precursor to reduced or at least less optimistic sales and earnings expectations in fiscal 2001.

"December's numbers are very safe," he said. "The question is how 2001 looks. Will that be the other shoe to drop?"

During Monday's conference call, Jain refused to comment on the company's financial outlook, saying those details will be provided next week when the company reports its fourth-quarter results.

First Call consensus expects InfoSpace to earn a penny a share on sales of $72.6 million. Last quarter, InfoSpace beat the Street estimate when it posted a profit of $9.5 million, or 3 cents a share, on sales of $57.7 million.

Separately, InfoSpace said it has inked an agreement with Microsoft to develop interactive TV services. Under the deal, InfoSpace will develop and integrate its broadband and interactive TV services to the Microsoft TV platform. InfoSpace will also be part of a content building initiative with Microsoft TV. Terms of the deal were not disclosed.

Last September, InfoSpace and Nortel Networks signed an agreement to deliver wireless Internet services to Nortel customers.

Anand Ablack contributed to this report.