Maverick Approach : Ebbers’ Ascent to Ranks of Telecom Giants Took Unlikely Path
What do you make of a bearded, Canadian-born, cigar-smoking Mississippi businessman who wears blue jeans and cowboy boots to work, decorates his sixth-floor office in Southwestern adobe-style and has a yacht docked in Florida called Aquasition?
What do you make, that is, of Bernard Ebbers?
A lot of people are asking that question of the enigmatic chief executive of WorldCom since he announced Monday that he will spend $12.5 billion in stock to acquire MFS Communications, catapulting his company to the upper reaches of the nation’s communications industry but raising questions about the viability of its strategy.
If you’re a long-term shareholder in WorldCom, Ebbers, who turns 55 today, probably looks like a genius. Through a series of acquisitions, Ebbers created a telecom giant with $3.5 billion in sales last year from a company with just $109 million in 1989 sales. Although the share price fell back sharply Monday on the news of the acquisition, $100 invested in the company in 1989 is still worth more than $2,000 today.
But analysts are having a harder time looking into WorldCom’s future. Is Ebbers simply a brilliant tactician with a flair for takeovers, or is he a man with a sharp, if unconventional, vision?
You won’t get much of a clue from the man’s background. Born in Edmonton, Canada, Ebbers went to Mississippi College on a basketball scholarship. Once out of school, he dabbled in the motel business before investing in several communications companies, including Jackson, Miss.-based LDDS Communications. In 1985, Ebbers became chief executive of LDDS, and the company was later renamed WorldCom.
Intensely private and religious (he is a member of Promise Keepers, a Christian men’s organization), he doesn’t like to talk about himself or his family. And he doesn’t often speak at conferences or to the media.
If you ask him about strategy, he is liable to say something about maximizing shareholder return. Ebbers has invested most of his personal fortune in maintaining his 4% to 5% stake in WorldCom. He likes to tell analysts the obvious: He won’t acquire a company unless he thinks it will make him money.
Stephen Shook, an analyst at Interstat / Johnson Lan in Charlotte, N.C., who has followed WorldCom for years, says Ebbers’ latest acquisition represents a departure from past practice.
Shook notes that all of Ebbers’ previous deals added to earnings. The purchase of MFS will be dilutive. “It will be very difficult for [the acquisition] to pay for itself,” says Shook. “It’s going to be zero cents per share there for a while.”
Others are more pessimistic.
“They have all the right pieces, but they will be crushed under the weight of integrating the business,” says David Goodtree, a telecom research director at a Cambridge, Mass.-based market research company.
Goodtree notes that the tough task of integrating the disparate elements of Internet, local and long-distance businesses comes at the same time the company must continue to feed the huge capital investment needs at MFS. “They will have a diffused focus and and an insatiable need for capital.”
While there is little overlap between the businesses of MFS and WorldCom, some of the two companies’ customers could be unhappy.
Phone companies like SBC Communications of San Antonio and Stamford, Conn.-based GTE Corp., which are now allied with WorldCom, may not like the idea of being tied to a company that does business with archrival MFS.
Similarly, long-distance companies that now give business to MFS may be more hesitant now that MFS is working with WorldCom.
And while WorldCom is a major player, its revenue after the buyout will be about $5.4 billion--less than half the size of the No. 3 long-distance player, Sprint. While it offers one-stop shopping, WorldCom still has no wireless offering.
Others are more sanguine. Brian Van Dussen, telecom director at Boston-based market researcher Yankee Group, argues that WorldCom has developed unique strengths by avoiding the high-cost, highly competitive business of serving consumers and going instead for the high-margin business of serving small and medium businesses.
And Ebbers has always managed, somehow, to disprove the skeptics.
“He’s a bit of a cowboy in the industry,” says Rick Wango, a managing director at Chicago-based consulting firm A.T. Kearney. Ebbers’ maverick ways could keep him in a good position against slower-moving competitors, Wango says. “He fights his battles where it is advantageous to him.”
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The Companies at a Glance
WorldCom Inc.
* Headquarters: Jackson, Miss.
* Number of employees: 7,500
* CEO: Bernard Ebbers
* Services: Provides domestic and international voice, data and video products and services to business customers, other carriers and the residential market; advanced billing systems; calling cards; debit cards; mobile satellite communications; and television and radio transmission.
* 1995 revenue: $3.64 billion
* 1995 earnings: $249.5 million (before a nonrecurring special dividend payment of $15 million to Metromedia)
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MFS Communications Co.
* Headquarters: Omaha
* Number of employees: 3,500
* CEO: James Crowe
* Services: Provides communications services for business and government, including local and long-distance phone service, security systems, combined cable TV and phone networks, calling cards, voice mail.
* 1995 revenue: $584.2 million
* 1995 earnings: $267.9 million loss
* Monday stock price: $44.8125, up $9.9375
Sources: Bloomberg Business News, company reports. Researched by BRENT WYETH / Los Angeles Times MAIN STORY: A1
