WorldCom CEO loses his swagger

Wall Street conqueror Bernie Ebbers, WorldCom's chief executive, seems to have lost his swagger after admitting mistakes and asking shareholders for patience.

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Wall Street conqueror Bernie Ebbers, WorldCom's chief executive, seems to have lost his swagger after admitting mistakes Wednesday and asking shareholders for patience.

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WorldCom split: the death of long-distance?
Jeanne Schaaf, analyst, Forrester Research

The maverick CEO from Clinton, Miss., took Wall Street by storm when in a rush of wild deal making he acquired MFS Communications, UUNet and then the biggest prize of all, MCI.

But now WorldCom's stock is consistently setting new 52-week lows, and Ebbers is feeling the heat.

He announced Wednesday that he is splitting the company into two parts, creating a tracking stock for the consumer services associated with MCI. That move drove the stock to yet another 52-week low.

"People have a legitimate right to ask if I'm the right person to lead the company," Ebbers told journalists Wednesday, a day in which he showed more humility than many have seen in his career.

Asked whether his board has given him a vote of confidence, Ebbers said, "They haven't told me they have any time (in mind for me) to leave the company."

Jupiter Media Metrix analyst Joe Laszlo seemed confident Ebbers will stick around, saying he is "flexible enough that if one vision doesn't work out you try another."

Just a few years ago WorldCom was a small operator on the telecom scene, but it made a name for itself by acquiring established players in various sectors, with the strong support of Wall Street lenders. Its crowning achievement was stealing MCI out of the tight grip of British Telecommunications.

"He's an engaging personality," said Drake Johnstone, first vice president and analyst for the Richmond, Va.-based investment firm Davenport & Co. Johnstone said Ebbers didn't really run into trouble on the Street until his acquisition of Sprint stalled.

Ebbers admitted fault on the Sprint deal. "I never said mistakes weren't made," he said. "The Sprint transaction ended up being a mistake, and I'm accountable for that."

He told reporters that the company still believes the deal should have been permitted to go through, especially considering all the mergers occurring among Baby Bells. He acknowledged that the process held back WorldCom for a year as it focused its resources on the merger review.

"What WorldCom suffered with over the last little while is a perception of not knowing where we're headed," Ebbers said. But he added that the restructuring will address this.

Some analysts weren't so sure, with three brokerage houses downgrading WorldCom after its announcement. Merrill Lynch lowered the company from "near-term accumulate" to "near-term neutral," CSFB from "buy" to "hold," and Wachovia Securities from "long-term buy" to "neutral."

Ebbers essentially admitted that with only a minimal level of capital investment and a focus on dividends, see story: Weak business tracks spun off not growth, the consumer division of WorldCom, MCI, will be allowed to continue its slow decline. That brought into question the continued success of other parts of that tracking stock, including the paging division SkyTel and WorldCom's ventures into local phone service.

Ebbers assured both investors and journalists, however, that newly emerging data markets such as managed Web hosting and Internet Protocol-Virtual Private Networks (IP-VPN) would help drive growth on the WorldCom side of the company.

WorldCom chief technology officer Fred Briggs backed that assessment, arguing that "nobody else offers end-to-end" data services. In an interview, Briggs quoted Ebbers as saying, "WorldCom is no longer a telecom company."

The company still has to earn revenues, though, and Johnstone thought it would be at least two quarters before WorldCom would see much improvement there. He said he was advising his clients to take "a wait-and-see approach" for the next few quarters.

Johnstone was far from bullish on the tracking stock, which WorldCom will assign to consumer services under the ticker symbol "MCIT." He predicted it will suffer the same decline as Avaya, recently spun off from Lucent Technologies.

As for the original acquisition of MCI by WorldCom, the deal that made Ebbers the toast of Wall Street?

Laszlo still thought it made sense, even with the restructuring. But Johnstone said that "looking in the rear-view mirror, it appears to be a bit of a mistake."