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Capellas takes over at WorldCom

Pledging to make the company a "model of good corporate governance and management integrity," Michael Capellas officially takes the reins at the beleaguered telecom giant.

Larry Dignan
3 min read
Pledging to make WorldCom a "model of good corporate governance and management integrity," Michael Capellas officially took the reins Friday as CEO at the beleaguered telecommunications giant.

On Monday, Hewlett-Packard announced that its president was leaving to pursue other opportunities. Capellas had told HP's board that he was in advanced talks with WorldCom.

According to sources, Capellas was itching to be a CEO again--just as he was before Compaq Computer's merger with HP. Now he gets his chance again at WorldCom, which said Capellas was the leading candidate.

Terms of Capellas pay package were not disclosed, pending approval from a bankruptcy court. WorldCom said it would seek court approval as early as Friday. By leaving HP during the first year after the Compaq merger, Capellas has collected more than $16.2 million in payouts. HP said it won't replace Capellas.

"I see this as a great opportunity," Capellas said in a statement. "I look forward to hitting the ground running." Although Capellas is credited with stabilizing Compaq before it was sold to HP, Capellas will have his work cut out for him.

WorldCom is mired in a $9 billion accounting scandal, a Chapter 11 bankruptcy reorganization and a Securities and Exchange Commission probe. Former CEO Bernie Ebbers resigned in April, and WorldCom restated its results amid accounting fraud that was uncovered a few weeks later. In June, WorldCom fired Chief Financial Officer Scott Sullivan.

Capellas is taking over for WorldCom's CEO John Sidgmore, who had too many ties to the old regime to satisfy creditors.

Capellas asserts that he can turn around WorldCom.

"I took this job because I am convinced that WorldCom has the assets, the customers and the people to regain a leadership role in this industry," Capellas said. "In order to do this, we must first regain trust and win respect."

Analysts said that with Capellas at the helm, WorldCom is more likely to retain major customers. "WorldCom has enjoyed relative stability in its large enterprise customer base, despite being in bankruptcy," said Goldman Sachs analyst Frank Governali. "An executive of Capellas' caliber and reputation should please these customers and re-enforce their decisions to stay--as long as service quality doesn't erode."

Governali said the addition of Capellas also improves odds that WorldCom can emerge from bankruptcy intact. Analysts say the company will also be able to compete better with rivals such as Sprint and AT&T because it will have more financial leeway to cut prices profitably.

The new CEO said he is encouraged by the company's improving financial position, noting that WorldCom has more than $1.4 billion in cash. That cash, coupled with stronger financial controls and debt restructuring, could make WorldCom a strong competitor once its Chapter 11 proceedings have been completed.

If Capellas is successful, he will secure his place as a turnaround artist. In his statement, Capellas noted that WorldCom was at the forefront of convergence between computers and the Internet, and will remain a leader.

"I have spoken to many groups--creditors, managers and board members--and it is everyone's desire to see this company succeed. WorldCom is made up of 60,000 hard-working men and women of high integrity, dedicated to quality of service and innovation."