IDT details offer for WorldCom units, customer backup

IDT Corp. officials Friday detailed their bid to buy WorldCom Inc. local phone offerings for businesses and MCI Communications Corp. dialup services, and offered backup telecommunications plans for customers of those units. A WorldCom spokeswoman, however, said the company was not in negotiations with IDT, and in any case does not plan to sell off core businesses.

IDT officials speaking on a conference call Friday said they are offering three years free cash flow of the businesses that would be acquired, forecast to be about US$5 billion [b]. Free cash flow typically is considered to be the cash a company generates from operations, minus what is needed to maintain the existing operations. The businesses IDT is offering to acquire include local telecom services mainly composed of the assets of MFS Communications Co. Inc., which WorldCom purchased in 1996. Other WorldCom businesses included in the IDT offer are Brooks Fiber Properties Inc., and MCI small business customers for dialup long-distance service.

IDT's offer does not include WorldCom's UUNet Technologies Inc. Internet network assets, nor the MCI enterprise customer businesses. IDT's interest in the WorldCom assets was first made public a week ago in a report posted online by the Wall Street Journal, and since then IDT has briefed various media outlets on details of its plans.

The IDT offer, company officials said Friday, would comprise an initial payment of $800 million [m] in IDT stock, upon the closing of the deal, with the rest being paid in cash installments during a three-year period. Conservative estimates of the free cash flow from the units during the three year period are $5 billion [b], but it could end up being more, IDT officials said.

WorldCom last week revealed accounting irregularities that caused the company to overstate earnings by nearly US$4 billion. The U.S. Securities and Exchange Commission is suing WorldCom for fraud, and a date for the case has been set for March next year, in the U.S. District Court for the Southern District of New York. WorldCom officials however are treating the IDT offer with skepticism.

"As far as we're concerned there are no negotiations going on" with IDT, said Julie Moore[cq], a spokeswoman for WorldCom, based in Clinton, Mississippi. "WorldCom would consider any serious offer, but is highly unlikely to consider selling core business units, and these are core business units."

In comments punctuated with barbs regarding the WorldCom financial situation and management, IDT Chairman Howard Jonas [cq] said on the conference call Friday that "the same people who made this (WorldCom financial) situation are the ones sitting on top of it now."

Former WorldCom President and Chief Executive Officer Bernard Ebbers [cq] resigned in late April and was succeeded by John Sidgmore, [cq] previously the vice chairman of WorldCom. WorldCom last week announced the firing of Chief Financial Officer Scott Sullivan [cq] and the resignation of Senior Vice President and Controller David Myers. [cq]But Jonas contended that "upper management is the same, there are no new senior vice presidents there."

Jonas also rolled out several backup plans, what he called "stabilization plans," to ensure current WorldCom customers they would have services to fall back on should the company go out of business.

"We are interested in buying these businesses and we don't want to see them hemorrhaging customers" he said, adding that WorldCom customers are already flocking to IDT. IDT would want to seal a deal with WorldCom within six weeks, he said. Beyond that time, WorldCom might have far fewer customers, he said.

The stabilization plan has two parts:

--Customers of the MFS and Brooks units can supplement their current services with a backup service from IDT's WinStar wireless offering. The WinStar business would provide those MFS and Brooks customers with redundant voice and data connections should WorldCom stop operating. The cost of the redundant service would come to about 5 percent of these users' current service, IDT officials said.

--IDT will also offer MCI's consumer and small business long-distance customers special account numbers that will allow them access to the IDT long distance network. The customers can make use of the special accounts on an as-needed basis or completely switch over to IDT.

WorldCom, however, denied that its customers are leaving.

"They (IDT) have been saying our customers have been flocking to them but this is simply not true," said WorldCom's Moore. "We're simply not seeing customer defections. Our financial issues have no affect on our network operations."

Jonas said that WorldCom's Sidgmore had called him and left a message at 5 a.m. several days ago, after IDT's offer was first made public. "I'm not the world's most diligent CEO ... I was not there at the time," Jonas quipped. Since then, Jonas said, he has been trying to reach Sidgmore, but has not been able to reach him.

"I think they're hiding from us," Jonas said.

WorldCom would not comment on specific barbs from Jonas, but at least one industry analyst said the IDT offer was not serious.

"This is not going to happen; WorldCom does not want to sell core assets. Maybe eventually, down the road, if creditors force them into bankruptcy, they would have to sell, but we're a long way off from that, at this point, " said Jeff Kagan [cq], a telecom analyst in Marietta, Georgia. "IDT must know that WorldCom can't respond to something like this in six weeks, so it can't be serious. They are getting publicity from this, that's for sure -- not that I'm putting them down. They've built up a big business, starting years ago from scratch."

IDT is based in Newark, New Jersey, and generated $1.2 billion in revenue in fiscal year 2001.

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