Feeds

WorldCom ejects Ebbers

Ebbing aways

  • alert
  • submit to reddit

Boost IT visibility and business value

ComputerWire: IT Industry Intelligence

Debt-ridden carrier WorldCom Inc has bowed to the inevitable and fired its CEO Bernie Ebbers following months of turmoil during which his position became untenable.

Ebbers founded the company and took it on a spending spree that saw its market capitalization rise to $180bn, but the debt he loaded it with to fund its purchases has crippled the company and brought its value down to just $9bn.

The Clinton, Mississippi-based company is currently the subject of an inquiry by the SEC into its accounting procedures, and it revealed earlier this year that Ebbers had borrowed $375m from the company - at a very favorable rate of interest and with no due date - to pay off personal investment losses.

Ebbers' acquisitions hid the fact that the company was consistently failing to produce the earnings necessary to fund the ambitious expansion plans. When regulators on both sides of the Atlantic blocked the $130bn acquisition of Sprint Corp, it signaled the beginning of the end for Ebbers' strategy.

His only other purchase of note after that was the disastrous acquisition of Digex for $6bn in September 2000. By the time the deal finally closed in February 2001, the writing was on the wall for the web-hosting business, but WorldCom continued to throw money at it, and only weeks ago announced that it would spend another $300m to prop it up.

When Ebbers' currency of choice - stock - descended in value to make it almost worthless in terms of its purchase power, more attention was paid to his execution and integration strategy. As the repayments of the amassed debts, which now total $29bn, started to loom, it became apparent that the purchases made could not deliver the necessary growth to pay them off.

Ebbers' position was considerably weakened last week when he admitted that the company was considering selling up to $2bn of assets in a humiliating strategic U-turn from its acquisitive past.

The firing of Ebbers also calls into question the position of CFO Scott Sullivan, who has been closely allied to Ebbers throughout his deal-making. The two created a highly centralized power structure and were known on Wall Street as "The Scott and Bernie Show".

John Sidgmore, who was previously vice chairman, has replaced Ebbers as president and CEO. He is left with a tough job of straightening out the mess WorldCom is in. It needs to find a buyer, but with $29bn debt suffocating its operations, no one will touch it as it stands. A total restructuring through Chapter 11 looks likely sometime next year when its debt maturities kick in.

© ComputerWire. All rights reserved.

The Essential Guide to IT Transformation

More from The Register

next story
BBC goes offline in MASSIVE COCKUP: Stephen Fry partly muzzled
Auntie tight-lipped as major outage rolls on
iPad? More like iFAD: We reveal why Apple fell into IBM's arms
But never fear fanbois, you're still lapping up iPhones, Macs
Sonos AXES support for Apple's iOS4 and 5
Want to use your iThing? You can't - it's too old
Stick a 4K in them: Super high-res TVs are DONE
4,000 pixels is niche now... Don't say we didn't warn you
Philip K Dick 'Nazi alternate reality' story to be made into TV series
Amazon Studios, Ridley Scott firm to produce The Man in the High Castle
There's NOTHING on TV in Europe – American video DOMINATES
Even France's mega subsidies don't stop US content onslaught
You! Pirate! Stop pirating, or we shall admonish you politely. Repeatedly, if necessary
And we shall go about telling people you smell. No, not really
Too many IT conferences to cover? MICROSOFT to the RESCUE!
Yet more word of cuts emerges from Redmond
Joe Average isn't worth $10 a year to Mark Zuckerberg
The Social Network deflates the PC resurgence with mobile-only usage prediction
prev story

Whitepapers

Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
The Essential Guide to IT Transformation
ServiceNow discusses three IT transformations that can help CIO's automate IT services to transform IT and the enterprise.
Consolidation: The Foundation for IT Business Transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.
How modern custom applications can spur business growth
Learn how to create, deploy and manage custom applications without consuming or expanding the need for scarce, expensive IT resources.
Build a business case: developing custom apps
Learn how to maximize the value of custom applications by accelerating and simplifying their development.