Wall Street cool to WorldCom restructuring

Investors are unimpressed with the company's creation of a tracking stock for consumer long-distance, sending its stock even lower.

2 min read
WorldCom chief executive Bernie Ebbers told investors Wednesday the long-distance provider will separate its consumer services from the parent company in order to reverse its stock decline--but it didn't have that effect on Wall Street.

At market close, shares of Clinton, Miss.-based WorldCom were down $2.81, or 13 percent, to $18.94. Earlier, shares hit a new 52-week low of $18.31.

"We recognize that as a company we have let you as investors down," Ebbers said. He promised that he and WorldCom management were committed to turning around the company's stock. He felt the pressure of shareholders, he said, including members of his own family.

"We have accumulated a lot of different assets" in mergers and acquisitions over the past few years, Ebbers said. In hindsight, "some of these assets probably should have been disposed of earlier."

In a demonstration of Ebbers' determination to target WorldCom's stock, he told investors the board chose to issue a tracking stock rather than spin off MCI because "a spinoff is a much more extended process."

The board wanted quick action, Ebbers said. A tracking stock can be in effect by the first half of 2001, he said, and shouldn't be subject to regulatory scrutiny, which could happen with a spinoff.

Ebbers said a final decision as to whether to spin off MCI in the future has yet to be made. "We haven't completely resolved that yet."

However, he said separating MCI within WorldCom made sense, referring indirectly to WorldCom's acquisition of MCI two years ago. "These business units have historically been separate units with separate books," he said.

An investor in the MCI tracking stock, which will have the Nasdaq ticker "MCIT," would be dividend-driven. While Ebbers said the company will guarantee $300 million annually in dividends on the tracker, the only investment that will be made in the company will be to improve cash flow, not to grow the company.

Ebbers estimated MCI's 2001 numbers will include $15.2 billion in revenues and $2 billion in cash flow, with capital expenditures of $500 million and debt repayment of $1.2 billion.

The WorldCom side of the company, containing data and Internet services, will reinvest its profits and focus on growth, Ebbers said.

WorldCom vice chairman John Sidgmore told investors that despite the see story: Weak business tracks spun off "correction" that occurred with dot-coms--one he said was appropriate--"e-commerce is going to be the dominant driver for change in business." He cited a Forrester Research study predicting that two-thirds of all business orders will be conducted online by 2004.

"It's much more efficient to sell over the Internet," he said, and just because some florists or grocers failed online doesn't mean that business services won't succeed.

"The mainstream companies are going to lead the charge" in e-commerce, he said, which is why WorldCom is shifting its focus to Web hosting, as reflected in its acquisition of a controlling interest in Digex.