Not Much to Fix at WorldCom?
Despite Wall Street’s ongoing battering of troubled WorldCom Inc., some industry experts say there’s really not much for the new chief executive to fix at the nation’s second-largest long-distance telephone carrier.
“When the economy turns around and when capital spending revives, WorldCom will come back,” said Jim Friedland, a stock analyst at Robertson Stephens in San Francisco. “Until then, you can’t just tighten a screw to fix things.”
John Sidgmore, promoted to chief executive Tuesday to replace ousted founder Bernard J. Ebbers, promised to review all the company’s business lines, with an eye toward selling non-core or poor-performing units and focusing on high-growth areas such as data services. Such moves and others will help the company, but “there’s not much broken,” said stock analyst Kevin Calabrese at Argus Research in New York.
Even a bond market expert such as Cory Jackson, one of many who question where WorldCom will come up with funds to repay $5.6 billion in debts coming due in the next two years, figures the company can sell assets and renegotiate loans to help in the short term.
“But a turn in the economy and improvement in their enterprise data business [fiber-optic lines that corporations use] are really what’s needed,” said the U.S. Bancorp Piper Jaffray analyst.
WorldCom, of course, has serious problems to address, and its long-term viability is not assured, analysts said. The company has a staggering $29.3 billion in debt, its revenue is shrinking and the shaky economic recovery and the big drop-off in spending by corporate America are wreaking havoc with WorldCom’s finances.
In addition, the big credit-rating companies are considering reducing WorldCom’s bonds to below investment grade, which could trigger bank loan provisions to repay $2 billion in loans and leave the company with no cash on hand to pay off bond debts. The company already is trying to change its loan terms to remove the trigger, and some analysts are betting the company will succeed.
Sidgmore’s biggest job will be to calm the bond markets, said stock analyst Peter Comack at Guzman & Co. in Miami. “The bond market is indicating that the stock’s worth zero,” he said. And without new bond sales, the company won’t be able to repay up to $3.1 billion in debts maturing next year.
The company’s stock slid 27 cents to a new 10-year low of $2.21 Wednesday as its bonds fell further in value.
Among the near-term steps the company should take, they said, are to sell assets such as its majority stake in Brazil’s Embratel Participacoes carrier, renegotiate its bank loan package, cut expenses, curtail capital spending and reduce a cash dividend that its separately traded MCI Group unit pays. Posting second-quarter results at least stable compared with the first quarter also would be a boon.
MCI said Wednesday that it is increasing rates for customers who are not on various long-distance and calling card plans. Certain international plans also are getting price hikes. Altogether, the increases affect about 10% of the customers. MCI, AT&T; Corp. and Sprint Corp. have been raising prices for the last two years.
Sidgmore promised in conference calls with reporters and analysts Tuesday that WorldCom, which has acquired more than 70 companies since the mid-1990s, will review its worldwide business with an eye toward restructuring.
“We’ve acquired new technologies, wireless technologies and others, that may not be [a priority] now,” he said.
But Comack doubts WorldCom has any significant assets to sell. It would be mostly small pieces that wouldn’t bring in much. Still, he said, “Every penny counts.”
The review is likely to attract interest from people such as Tom Gores, who has purchased a string of telecom businesses as president and chief executive of Platinum Equity in Los Angeles. His firm is preparing a bid for telecom network operator Global Crossing Ltd., which has filed for bankruptcy protection. But Gores said, “We’re looking at everything,” including smaller and non-critical businesses that WorldCom and other large companies want to sell.
