A Mysterious Changing of the Guard: Is There Something ECtel's Not Telling?

Eitan Naor is stepping down as president and CEO at ECtel Ltd. (Nasdaq: ECTX) and moving to Magic Software Enterprises Ltd. (Nasdaq: MGIC).

At first glance, it looks to me like ECtel will suffer and Magic will benefit, but when I say this I am referring, of course, to Wall Street and not Main Street, where both companies have been making excellent progress. From my brief acquaintance with Naor, I got the impression that he was one of those managers that can turn a company around and lead it to business success, which is exactly what he has been doing at ECtel during his three years there.

Magic, which has already been turned around twice by chairman David Assia, is expanding again, and with the appointment of Naor it will benefit from an energetic and capable individual who, under the tutelage of Assia, can a lot of good things.

But what is really bothering me is why Naor has left ECtel. I find it difficult to believe that it was because, to use his own comments in the company announcement, after three years with the company he felt that he needed a change and wanted to pursue new opportunities. Judging from his comments a month earlier when the company unveiled its 2006 results, it would be difficult to conclude that he had any reason to step down. Quite the contrary, he described 2006 as the "key year" ahead of the company’s leap forward.

Most managers at Naor's level who I know (in fact all of them) do everything they can to ensure that when they step down, it will be when they have reached a peak. In this case, Naor has left before reaching the peak, which he is convinced is almost in sight, and this is a rather strange occurrence that goes against the behavior of good management.

Supposing Naor is right and that ECtel is now progressing towards new highs, then his successor will get all the credit for the success. So something about this doesn't look quite right to me, and I don't think it was voluntary.

One logical reason could well be that the ECtel board wants to sell the company, and that with the breakthrough in the offing, this is the right time to put out feelers. If this is the case, then it could well be that Naor wasn't happy about it and that he wanted to secure himself a safe berth for the long-term. Had he asked me, I would have said that the move to Magic was an extremely smart move, especially considering that David Assia is still chairman there.

To be honest, I have been wondering how it is that ever since it unveiled its results and gave its forward guidance, both of which were good, ECtel's stock has been tumbling. It's as if someone knew in advance what was coming, and someone probably did. The question now is who will step into Naor's shoes at ECtel.

ECTX vs. MGIC 1-yr chart

Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.