WorldCom's embattled president and chief executive officer, Bernard Ebbers, has resigned, the company announced Tuesday.
Ebbers built the second-largest long distance telecommunications company in the U.S. from a series of acquisitions, but as questions emerged over the long-term financial viability of the Clinton, Mississippi carrier, the company's share price fell dramatically.
Ebbers has been replaced by John Sidgmore, previously the vice chairman of WorldCom. Sidgmore was president and chief executive officer of Internet service provider UUNet Technologies Inc. When UUNet merged with MFS Communications Co., he became president of MFS, which in turn was bought by WorldCom in 1996. At WorldCom, Sidgmore became chief operating officer and vice chairman.
The board of directors had been in talks with Ebbers about a possible resignation for a while, Sidgmore said in a conference call with investors Tuesday. "Bernie was under tremendous pressure," he said. "At the end of the day, Bernie decided that it was time to go."
The company intends to keep Ebbers' exit package a secret until filing its proxy statement later this year, Sidgmore said. Ebbers' severance "is not out of the ordinary for executives of his level," Sidgmore said.
Chief concern for Sidgmore and the board of directors is changing the way WorldCom is perceived by the public. "We've lost credibility with Wall Street and the press little by little over the last six months," he said.
Sidgmore denied that he had been hired to prepare the company for a sale, or to ride the company into bankruptcy court. "We don't believe there is any way under any circumstances that the company will run out of money in the foreseeable future," he said. Sidgmore intends to pay down debt and find a better return on invested capital than shareholders have seen lately, he said. He reminded investors and the press that the company has $1.4 billion in cash on hand, $4.2 billion in available credit from bank facilities, and remains cash flow positive.
All options to improve WorldCom's finances remain on the table, including serious reductions in capital expenditure, new acquisitions and selling or trading part of its network assets, he said. Renegotiating debt also remains a possibility, he said.
"I think it was time for the acquisition strategy to end and the collection of pieces to work better together," said David Cooperstein, research director for the telecommunications team at Forrester Research Inc. "Sidgmore has a short window of opportunity to fix the company before they attempt to sell it."
Earlier this month, WorldCom announced a 6 percent cut in its U.S. workforce, cutting 3,700 positions from its data services division. It was only the latest in a series of job cuts over the last two years.
Fearing the potential for a massive bankruptcy, investors have fled from WorldCom. The company owes US$28 billion in debts, with $4.5 billion of that debt maturing in the next three years. Meanwhile, long distance revenue is deteriorating rapidly in the face of stiff competition from wireless service providers, Internet communication and local phone companies entering the market.
WorldCom is also facing a U.S. Securities and Exchange Commission (SEC) probe into its accounting practices and acquisition strategy. WorldCom has yet to take a massive write-down in the value of its assets, as other carriers have had to do to keep in line with new accounting rules for evaluating assets following mergers. The company warned investors of a $15 billion to $20 billion write-down in the value of its assets this year.
Ebbers himself has been a magnet for critics. The company lent him $366 million to keep him from selling WorldCom stock to cover his losses as the share price of WorldCom fell off a cliff in January. The SEC is also looking into the loan.
The company's stock bounced about 10.6 percent higher on the Nasdaq exchange Tuesday, trading at $2.60 a share near midday. Still, it has lost about 82 percent of its value over the last four months. WorldCom's stock was valued at about $15 a share in January.
If WorldCom went on the auction block now, it would be worth about US$7.7 billion, a fraction of its value two years ago when the proposed merger with Sprint Corp. fell through because the merger faced an antitrust court battle with the U.S. Department of Justice. In July 2000, when the $129 billion merger fell through, WorldCom's stock traded at $48 a share.
The Sprint merger would have been the most audacious of acquisitions for a company built from at least 60 merger deals. Notably, WorldCom acquired UUNet for its Internet backbone and swallowed MCI Communications Corp. to become the second-largest long-distance carrier in the U.S.
"(Ebbers) was a machine. He'd repeat the winning formula over and over," said Jeff Kagan, a telecommunications analyst in Marietta, Georgia. "When regulators killed the Sprint deal, something died inside Bernie. It was the first time anyone said 'no' to him."
The Sprint deal meant to bring wireless assets into the fold. WorldCom's wireless strategy has faltered since, while its long distance competitors AT&T Corp. and Sprint have pursued the mobile market with vigor.
Right now, the company's breakup value might be worth more than the sum of its parts, Cooperstein said. "They can't sell it now ... its value is too low," he said. The company needs to bring back the vision and leadership of the UUNet days, and it must find a way to work with the local phone companies instead of for them, he said.