WorldCom's action was expected and follows AT&T's move last week to assign a tracking stock to its long-distance unit and spin off its cable and wireless divisions. Sprint is expected Friday to outline a restructuring that will emphasize its data services and shift the company away from consumer long-distance.
All three companies view the long-distance market as one of declining revenues and profits because of increased competition and new technologies such as the Internet and wireless phones. The market has agreed with them, and all three companies since the summer have posted successively declining 52-week lows in their stock prices.
Compounding WorldCom's stock woes, the company Wednesday also told Wall Street that its fourth-quarter earnings will be lower, somewhere between 34 cents and 37 cents per share. That's considerably lower than the 49 cents per share forecast by analysts polled by First Call/Thomson Financial.
WorldCom's board has approved the tracking stock, which will be applied in the first half of 2001 and will involve a tax-free distribution to shareholders of 100 percent of MCI. WorldCom shareholders will receive one share of MCI stock for every 25 shares of WorldCom stock.
The deal is subject to shareholder approval, but WorldCom said in a statement that it anticipates no regulatory hurdles.
As is the case with AT&T and its consumer long-distance tracking stock, WorldCom stock will focus on reinvesting revenues in the business, while MCI stock will return dividends.
WorldCom said the creation of the tracking stock will allow management to "more adequately address the unique fundamentals of each unit," while helping investors "understand the value of each business." The company's statement said the move is not a change in strategy but merely provides "greater clarity between the two businesses," data services and long-distance service.
While MCI will focus on maintaining cash flow and returning dividends, WorldCom will continue to grow its data businesses, which the parent company says provided all of its $1.1 billion in incremental revenues during the third quarter, ended Sept. 30.
WorldCom said it plans to invest heavily in global Internet Protocol-Virtual Private Networks (IP-VPNs) and Web hosting. The company said the IP-VPN market is expected to grow to more than $7 billion by 2005, and Web hosting to more than $19 billion by 2004.
WorldCom recently upgraded its presence in the Web hosting market by acquiring a controlling interest in market leader Digex through the acquisition of parent company Intermedia Communications.