VeriSign Shares Jump as Chief Executive Sclavos Abruptly Quits

VeriSign, which manages the ".com" and ".net" domain names registry, said that Chief Executive Stratton Sclavos has resigned for undisclosed reasons. Analysts were startled by the abrupt departure. The company gave little information about the reason for Sclavos' exit after 12 years as CEO.

Nevertheless, the stock rose about 5% on the news Wednesday.

William Roper Jr., the former chief financial officer of government technology contractor Science Applications International, was appointed to succeed Sclavos, in a sign the company is focusing on improving profits and reining in spending.

A VeriSign spokeswoman said Tuesday that both men were talking with customers and employees and would not be available to comment.

Sclavos also stepped down as chairman. The board elected Edward Mueller, former chief executive of home furnishings retailer Williams-Sonoma, to take his place as chairman.

Analysts said investor sentiment about Sclavos had been mixed.

"Many investors liked the CEO, but there were also a lot of investors that didn't," said Todd Weller, analyst with Stifel Nicolaus & Co. "Sometimes you get credibility issues with the management team when you have ups and downs with your business. And with VeriSign over the years, there have been a lot of ups and downs."

Some analysts said his resignation may have been fueled by intractable disagreements with the board, and the desire by directors to install fresh blood at the helm to appease investors looking for more cost-cutting maneuvers and improved profit margins.

Others said Sclavos may have been forced out in a backlash over an aggressive acquisition strategy that didn't always pay off for shareholders.

Mike Ford-Taggart, equity analyst with Morningstar, said VeriSign has spent more than $1 billion acquiring new technologies since 2001, but has raised concerns by plowing its cash into acquisitions involving unprofitable or borderline-profitable companies.

"It's always very odd when someone like this leaves that abruptly," he said. "But at the end of the day I don't think it matters. The most important thing about this company is its strategy. And I don't like their acquisition strategy."

Analysts Ponder Possible Backdating Involvement

The sudden departure also raised more questions than it answered about Sclavos' possible role in stock-options manipulation at the company.

Mountain View-based VeriSign has said it needs to restate its financial results from 2001 through the first quarter of 2006, and expects to take up to a $250 million charge, as a result of options shenanigans.

The company said an internal investigation found no evidence of "intentional wrongdoing" by current senior managers, including Sclavos, but released scant details Tuesday, leading some analysts to continue wondering about the extent of his involvement.

At issue is a practice known as backdating, in which options are issued retroactively, pegged to low points in the stock price to boost the recipients' profit. It's not necessarily illegal, but must be disclosed to investors and accounted for properly.

VeriSign operates two of the 13 so-called "root" servers that manage global Internet traffic.

The company also provides routing support for every Web address ending in ".com" or ".net," processing as many as 31 billion domain name system, or DNS, queries a day. Such queries occur when Internet users click on ".com" or ".net" Web links or check e-mail and use applications that use those domain names.