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WorldCom: An Example of Corporate Excess By Scott B. MacDonald Under Bernie Ebbers in the 1990s WorldCom rose to become the second largest long-distance and data services company in the United States. The company followed an aggressive strategy involving 60 acquisitions, the highpoint of which was the $37 billion purchase of MCI in 1996. By 1999, WorldCom generated close to $40 billion in revenues and its stock peaked in the mid-$60 per share range. Ebbers had taken a small company based in Clinton, Mississippi and converted it into a major global player in the international telecommunications industry. WorldCom's push to become a major powerhouse, however, came at a cost. To wheel and deal in the telecom market a considerable sum of capital was borrowed from the banks and raised by Wall Street firms. Impressed by Ebbers' rag-to-riches tale and his ability to sell the company, investors lined up. By year-end 2001, WorldCom group's debt was a massive $30 billion. In the late 1990's, the money poured in. However, the telecom industry began to undergo a dramatic change. WorldCom's once highly specialized product of long-distance communications shifted into a lower-priced commodity. Fierce price competition ultimately generated less revenue, just in time for the tech bubble burst in 2000-2001, taking WorldCom's stock with it. Complicating matters for WorldCom was that CEO Ebbers had gone on a buying spree and accumulated a number of personal acquisitions, ranging from a massive timber farm in British Columbia to a boat called the "Aquasition" and a mansion in Mississippi. Ebbers used WorldCom stock to secure bank loans to make these purchases. When stock prices began to fall, the bank called the loans. Ebbers then turned to his board at WorldCom, which first guaranteed the loan and then assumed the debt itself. Consequently, Ebbers came to borrow money, some $366 million, from his own firm, an action that is regarded as poor corporate governance and raises serious moral questions. If nothing else, the loans were a factor in the SEC's decision to investigate WorldCom. Moreover, they represent an ongoing thorn in the side of John Sidgmore, Ebbers' successor in April 2002 as CEO. The accumulation of falling profitability, questionable corporate governance and a SEC investigation all made WorldCom a focal point for frustrated investors looking for someone to blame. WorldCom's stock has been severely punished and now trades under $3 a share. The company's bonds are now junk bonds, as Moody's and Standard & Poor's have both dropped WorldCom from investment-grade gradings to to non-investment-grade. The sad commentary on WorldCom is that what once was one of the stars of Wall St. is now a company struggling to survive.
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Editor: Dr. Scott B. MacDonald, Sr. Consultant Deputy Editor: Dr. Jonathan Lemco, Director and Sr. Consultant Associate Editors: Robert Windorf, Darin Feldman Publisher: Keith W. Rabin, President Web Design: Michael Feldman, Sr. Consultant Contributing Writers to this Edition: Scott B. MacDonald, Keith W. Rabin, Uwe Bott, Jonathan Lemco, Jim Johnson, Andrew Novo, Joe Moroney, Russell Smith, and Jon Hartzell
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