WorldCom Tumbles After Downgrade

WorldCom Inc. stock plunged to a 12-year low Monday after Salomon Smith Barney analyst Jack Grubman, once one of the company’s biggest Wall Street advocates, recommended investors avoid shares of the second-largest U.S. long-distance firm.

With the stock already down more than 90% since December, Grubman cut his rating on WorldCom to “underperform” from “neutral.” In April he stopped recommending investors buy the stock for the first time in more than four years.

WorldCom stock, which fell 31 cents to 91 cents on Nasdaq, may be delisted if it trades under $1 for 30 straight days.

Some investors doubt WorldCom can survive unless the company repays $30 billion in debt, secures new loan terms and sees increased spending on its services by businesses.

“Until we see that kind of turnaround, the stock is going to keep going down,” said John Maxwell, a telecommunications analyst at Waddell & Reed Financial Inc.

At Monday’s stock close, WorldCom’s market value was $2.7 billion. The company once was worth $115 billion.

Former Chief Executive Bernard Ebbers, who built the Clinton, Miss.-based company with more than 75 acquisitions in 17 years, resigned in April under pressure from WorldCom’s board. The resignation came after the Securities and Exchange Commission launched an investigation into a $412-million loan the company made to Ebbers.

Salomon’s Grubman cut his 2002 sales estimate for WorldCom to $19.6 billion from $20.2 billion, saying business spending on telecommunications services may be less than expected.

“We believe there is a risk of WorldCom lowering guidance again,” he said in a report.

He also said WorldCom may undergo a recapitalization to lower debt that would “significantly dilute equity holders.” He wasn’t more specific.

Grubman has long been bullish on the telecommunications sector and has attracted controversy for what some critics have said was a too-close relationship in the late-1990s with management of failed telecom firm Global Crossing Ltd.