First Data Corp. has hired a prominent turnaround expert with no financial services experience as its chief executive.
The Denver processing company said Tuesday that Michael D. Capellas would become its CEO after the New York private-equity firm Kohlberg Kravis Roberts & Co. completes its $29 billion buyout this quarter. Related Links First Data Buyout: Which Pieces Wall Street Views as Still in Play Will Buyout Recharge First Data's Strategy? 4Q Earnings: First Data to Consolidate Data Centers, Platforms First Data Urged to Name Outsider as CEO First Data to Hire CEO from Within; Earnings PreviewedThough Mr. Capellas is a well-regarded technology executive, First Data watchers focused on his status as an outsider — not just to First Data but to the payments industry and even to financial services. These observers said he would likely benefit from a lack of preconceived notions but also might confront a steep learning curve.
In any case, one thing is certain, they said: Mr. Capellas' hiring confirms that First Data faces a major overhaul.
The hiring is a shift from First Data's announcement in December that it was looking at internal candidates. Those plans likely fell by the wayside after the KKR deal was announced in April. Instead, First Data chose someone with a track record of fixing struggling companies and then selling them.
"They were looking for a turnaround guy, and they got that," said Tien-Tsin Huang, an analyst at JPMorgan Securities Inc.
Mr. Capellas is perhaps best known as the former chief information officer, and later CEO, of Compaq Computer Corp. who helped engineer its $19 billion sale to Hewlett-Packard Co. in 2002.
He left HP as its president later that year to become the CEO of MCI Inc., the bankrupt telephone carrier. He convinced creditors to accept a bankruptcy reorganization, retained several major customers, and then negotiated its sale to Verizon Communications Inc. last year. He has been a senior adviser to the private-equity firm Silver Lake Partners since then.
"Michael has a strong track record for vision, innovation, and value creation in large, technology-related businesses and is ideally suited for this position," KKR partner Scott Nuttall said in a press release. A spokesman said that executives would not comment further, and that Mr. Capellas was not available. First Data spokesmen didn't return calls.
"I look forward to joining First Data at this pivotal time and believe the company is uniquely positioned to pioneer innovative technologies for the next generation of electronic and mobile commerce," Mr. Capellas said in the release.
First Data has been looking for some time for someone to succeed Henry C. "Ric" Duques, who returned to the chairman and CEO roles in November 2005 after Charles T. Fote's abrupt departure. Mr. Duques said then that he wanted to retire within two years.
Lawrence S. Berlin, an analyst at First Analysis Securities Corp. said that Mr. Capellas likely would want to put his own management team in place, and that his long-term goals would be "to rationalize the company, make it more profitable, and find an exit" for KKR.
He also said that as an outsider, Mr. Capellas could tackle such tasks without emotional attachments. "He has a good reputation as somebody who has handled similar tasks at other companies over the last 10 years. … He has management experience. He has reorganization experience."
When First Data said it was looking at three internal candidates for the CEO job, Mr. Berlin urged it to look for outside leadership. It had been believed to be focusing on its three division presidents: Ed Labry, of commercial services; Pamela H. Patsley, who runs the international division; and David P. Bailis, of financial institution services.
"You've got an issue of 'group think' within the company," Mr. Berlin said. "You need somebody from outside with a different perspective."
John Kraft, an analyst at D.A. Davidson & Co., said that the company is planning to consolidate its platforms, and he predicted that under Mr. Capellas, the processor would be in for a thorough overhaul. "I expect First Data is going to be doing a lot of rationalizing and restructuring," he said.
In January, Mr. Duques said that it would consolidate its 13 processing platforms into four and its 12 data centers into three.
Mr. Kraft and Mr. Huang both expressed surprise that First Data was hiring an outsider. Mr. Huang said that Mr. Capellas' inexperience in payments could slow any reorganizing First Data.
"He's going to have to familiarize himself with the payments business," Mr. Huang said. "If they went outside, I thought they would pick someone with payments experience, or at least someone in banking."
First Data's stock fell 0.67% Tuesday.