Vonage Holdings Corp. will name a new chief executive as early as next week, people familiar with the matter said, as the Internet-phone provider neared completion of a refinancing deal critical to keeping the company afloat.Vonage said Thursday that it had entered into a commitment letter with hedge fund Silver Point Finance LLC for as much as $215 million in financing. Vonage, based in Holmdel, N.J., said it will use the net proceeds plus its own cash to repurchase the remainder of its $253 million in convertible notes. Vonage had until Dec. 16 to raise money to buy back the notes. Uncertainty about its ability to do so had prompted its auditors earlier this year to question its ability to stay in business.
"This is a really good step forward," said Jeffrey Citron, Vonage's chairman and interim chief executive. Although the deal is still subject to some terms, including other lenders providing $60 million of the debt financing as part of the Silver Point package, he said, "We feel comfortable that we'll get this transaction done."
Mr. Citron, 37 years old, founded Vonage and ran the company until early 2006. In April 2007, he stepped back in as CEO to steer the company through a flurry of patent lawsuits and bankruptcy worries. By January, Vonage had settled patent-related litigation with Nortel Networks Corp., AT&T Inc., Sprint Nextel Corp. and Verizon Communications Inc.
Now that the legal and debt hurdles are nearly resolved, Mr. Citron plans to let someone else manage Vonage's day-to-day operations, though he will remain involved with the company. Vonage declined to provide details on its succession plans.
Questions remain about Vonage's long-term prospects. The company faces intensifying competition from cable operators, which sell telephone service bundled with TV and Internet services. Even wireless carriers pose competition, as some people are disconnecting their land-line phones in favor of having a cellphone only. Vonage ended its first quarter with 2.6 million subscribers.
"The environment's certainly not getting any easier on them," said Rich Greenfield, an analyst at Pali Capital.
By: Andrew Lavallee
Wall Street Journal; July 25, 2008
