April 30, 2002, 9:00 AM — WorldCom Inc.'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Ebbers has been replaced by John Sidgmore, previously the vice chairman of WorldCom.
"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.
If WorldCom went on the auction block now, it would be worth about US$7 billion, a fraction of its value two years ago when the proposed merger with Sprint Corp. fell through because it faced an antitrust court battle with the U.S. Department of Justice.
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 Technologies Inc. for its Internet backbone and swallowed MCI Communications Corp. to become the second-largest long-distance carrier. 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.