Hancock's $3 billion legacy

When Ellen Hancock left Exodus Communications as chairman and CEO last week, she left behind $3 billion in debt for successor L. William Krause.

And because one of the biggest challenges of any stand-alone Web hoster is illustrating financial stability, Krause has a lot on his plate — especially in a weakened economy.

But Krause may not be the man for the job and, in fact, may be setting the company up for acquisition. “He is a place-holder,” said Howard Anderson, founder and senior managing director of Yankee Tek. “If I'm a potential acquirer, Krause does not present a problem. Krause will step aside. He is kind of a rent-a-CEO, but not to take the company anywhere else — to hold it to see if it can be sold.”

Ted Chamberlin, network research analyst for Gartner, concurred. “It was just a stopgap move,” he said. “They had to immediately fill Ellen's shoes, and Krause was the most tenured board member with the most experience. [But] I don't see him as the panacea.”

Krause, who was unavailable for comment, has been on Exodus' board since 2000. He currently is president of LWK Ventures in Silicon Valley and is the former chairman of 3Com.

Hancock, who had become a lightening rod for criticism among former employees, had difficulty in meeting company expectations and agreeing with Exodus' board of directors. “The stock price is sub-dollar. The market cap is $400 million or less and decreasing,” said John Gonsalves, vice president of Adventis. “People like Krause thought they could do it hands-on and fire the management team and start fresh.”

Hancock's resignation was a “mutual decision” between the board of directors and Hancock, a company spokeswoman said. Anderson — who helped Hancock get the job at Exodus — said Hancock is currently thinking about what to do next. He predicts she will join another company or a venture capital group in the next few months.

Analysts seemed to agree that Exodus currently has three options for salvation: filing for Chapter 11, being bought out or securing enough funding to make the company EBITDA-positive in the next few years.

“Exodus will try to survive as a shell of its former self,” said Dana Tardelli, research analyst for carrier and enterprise communications for Aberdeen Group. “They may find themselves reverting back to bread-and-butter co-lo and do the basics.”

Clearly, market capitalization and shareholder value put tremendous pressure on the senior executive team, Gonsalves said. “The winning strategy is to do some value-added services, [and] I see them on that path.”

Jim Barthold contributed to this story.