WorldCom talked up its restructuring plans on a conference call Wednesday aimed at rebuilding its reputation as a business with long-term possibilities.
"The public perception of WorldCom and the reality of WorldCom are at odds," said Chief Executive John Sidgmore, who told industry analysts and reporters how important they are to the company's business. "We know that we have not always been easy to deal with, but we want to rekindle the relationship."
Sidgmore has been confident about turning the telecommunications company around since he joined in April after the resignation of founder Bernie Ebbers. But the company has faced predictions of bankruptcy and customer defections, and has yet to introduce a convincing restructuring plan.
Sidgmore argued against what he calls "misperceptions" about the company's finances and customer attrition. He also outlined the company's restructuring plan, which he said will be formally announced in the next two weeks.
Key changes include discontinuing the tracking stock and possibly selling the company's wireless resale business and some global divisions. Sidgmore also said the company's balance sheet was solid and denied the possibility of bankruptcy.
Financial analysts, who were not included in the conference call, said WorldCom's positive spin rings hollow. Some said they don't expect any positive news to come with the company's pending announcement, adding that its balance sheet is far from strong.
"I think they're going to continue to spin everything in a positive direction," said Rick Grubbs, an analyst with equity research firm Credit Lynnais Securities. Grubbs predicted that the company will lower its estimates for the year.
Wall Street expects WorldCom to post earnings of 37 cents a share for 2002, down sharply from last year's earnings of $1.01, according to First Call's consensus of analyst estimates.
For simplicity's sake
Though WorldCom said the divestiture of several of its businesses would improve its balance sheet, management emphasized that it wanted to pare down operations for the sake of simplicity.
"Over the last five years we've made 75 acquisitions; not all of them are perfect fits," said Sidgmore, adding that the company's main goal is to become "operationally efficient."
Sidgmore said the company's wireless resale business would be sold "as fast as possible." WorldCom doesn't have its own wireless network but sells services over networks owned by competitors like Sprint PCS.
WorldCom's chief added that he does see the company continuing to do business in the wireless industry, mainly through partnerships.
"We have a lot to bring to the party," he said. "If wireless data is to be successful, it will ride on an Internet backbone."
Sidgmore also said local operations in Japan, Mexico and other countries would likely be among the first businesses to go. The company plans to continue international services to those companies and will only consider divesting itself of local operations within certain countries.
The CEO reiterated last week's plans to get rid of the company's tracking stock, a move he said would save the company $284 million. The tracking stock, which trades under the symbol "MCIT," is used to track the long-distance telephone assets WorldCom obtained from its merger with MCI. Shares of WorldCom, which trade under "WCOM," track the company's main data and Internet businesses.
A question of customers
Financial analysts said that the company's announcements about divestitures were old news, and that they don't expect any positive elaborations on those plans in the coming announcement.
"The real challenge is to start actually selling these assets and paying off debt," Grubbs said.
In addition to dealing with talk about bankruptcy, WorldCom has come under fire from analysts who say the company is losing more customers than usual.
But WorldCom insists that is not the case. It said Sprint's claims that it has won WorldCom customers are a natural part of doing business with competitors.
"You'd be crazy to think (WorldCom) won't lose a meaningful customer," said Grubbs, asserting that it is only a matter of time.
The company also emphasized its goal of regaining credibility on Wall Street by proving it can meet estimates and said its financial situation is better than the market assumes it to be.
"Liquidity is not an issue. We have an undeniably strong cash position, and we have a very solid balance sheet," Sidgmore said.
Analyst Tim Horan of CIBC World Markets did not agree.
"Wow," Horan said. "We have a very different perception." He said the market's perception is also at odds with management's statement. "The company's bonds are trading at 50 cents on the dollar; that generally doesn't imply a strong balance sheet."
Grubbs added that the company's more than $30 billion in debt pokes holes in Sidgmore's assertion.
WorldCom Chief Financial Officer Scott Sullivan said the company has $1.6 billion in cash on hand and expects to have another $5 billion in financing by June. The additional financing will help the company pay off its $2.65 billion credit line, he said.
Analysts said the company's cash flow is the only financial strength it can point to right now, and if the situation changes, it is likely to declare bankruptcy.
"If at any time they look and see they are losing customers and cash flow, they will want to stop that process immediately by declaring bankruptcy," Grubbs said.
Horan, who said there is an 80 percent chance that the company will declare bankruptcy in the next three years, predicts that WorldCom will announce "massive downsizing" and cuts in capital expenditures when it releases its formal restructuring plan.