WorldCom CEO Has Acquired Taste for Deals
For WorldCom Inc. Chief Executive Bernard Ebbers, acquisitions are the name of the game.
Ebbers, a Canadian who likes to work in jeans, cowboy boots and turquoise jewelry, has bought more than 40 companies in the last five years, spurring WorldCom’s surge to No. 4 among U.S. long-distance carriers. The most recent purchase is a $1.2-billion stock swap for CompuServe Corp., H&R; Block Inc.’s online service. The acquisition would expand WorldCom’s UUNet Technologies Inc. unit, which already is the world’s biggest Internet service provider.
While WorldCom rivals AT&T; Corp., MCI Communications Corp. and Sprint Corp. fight over fickle and low-margin consumers, Ebbers targets the more profitable business customers and their appetite for convenient ways to transfer increasing loads of company data.
“He’s very sharp, focused and gets what he wants done,” said Jeffrey Kagan, president of Kagan Telecom Associates in Atlanta. “He’s not stopping. To him, this is a big game.”
So far, 56-year-old Ebbers is winning.
WorldCom shares have risen 21% this year, while shares of No. 1 long-distance company AT&T; have fallen 3% and No. 2 MCI have dropped 11%. Shares of No. 3 Sprint rose 17%.
WorldCom increased revenue at a faster clip than its rivals as the amount of traffic carried on its phone network surged 57% in the second quarter. That compares with Sprint’s volume growth of 15%, AT&T;’s 9.7% and MCI’s 5.5%.
WorldCom recently unveiled an Internet fax service aimed at capturing a share of the estimated $92-billion annual market.
CompuServe would give 14-year-old WorldCom, which began by reselling long-distance phone service by leasing time from AT&T;, a network of business customers, who generally pay higher Internet fees than do individuals.
WorldCom is also in talks to acquire America Online Inc.’s business services unit, or the network that carries information between businesses, in exchange for CompuServe’s consumer division, $200 million and other considerations, sources familiar with the transaction said.
“It’s a natural extension of their commercial activities,” said Joseph Arsenio, an analyst at Hambrecht & Quist.
Ebbers, a former junior high baseball and basketball coach who graduated from Mississippi College with a degree in education, became CEO at WorldCom in 1985.
Today, he is one of WorldCom’s biggest shareholders, with 14.2 million shares. That includes the purchase of 1 million shares for $23.23 to $23.98 each in April. On Monday, WorldCom shares closed at $33.75, up $2.25, on the Nasdaq.
WorldCom’s biggest acquisition to date has been its $15.46-billion purchase of MFS Communications Co. That transaction, which gave WorldCom a quick entry into the $100-billion U.S. local phone market, closed Dec. 31. MFS has built fiber-optic networks in major cities and provides local services to lucrative business customers.
“He’s a true American success story,” Kagan said. “Every time [Ebbers] closes one deal, he wants another. It’s an insatiable appetite.”
Still, some of the acquisitions have slowed WorldCom’s earnings growth. WorldCom’s second-quarter profit, because of costs associated with its MFS acquisition, fell to $79 million, or 8 cents a share, from $100 million, or 25 cents, a year earlier. Sales rose 65%, to $1.77 billion from $1.07 billion. AT&T;’s sales rose 2.4% to $13.2 billion.
Ebbers’ latest purchase might not please shareholders.
“WorldCom investors are going to look at this long and hard from the standpoint of what this costs,” Arsenio said.
Even so, analysts also applaud Ebbers’ ability to meld his acquisitions quickly. WorldCom now has long-distance, local and Internet services that it is able to offer to businesses on one bill.
WorldCom told analysts in June that it expected revenue to rise 30% annually for the next three to five years. It also said it will save about $300 million this year from efforts to combine MFS.
