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WorldCom: Take My Assets, Please

What a garage sale. WorldCom's filing for Chapter 11 bankruptcy protection on July 21 in New York basically puts its 20 million customers, the world's largest data network, and all its other treasured assets up for grabs at pennies on the dollar. Just one problem: No buyers.

With their own stocks deflated in the latest stock market swoon, the Baby Bells no longer have the currency to pick up distressed assets. But even if their stocks were soaring, the Bells wouldn't be swooping in. They fear the open-ended liability of owning a part of WorldCom (WCOME), given the ongoing investigations by Congress, the Securities & Exchange Commission, and the U.S. Justice Dept. into accounting irregularities. Says Jim Andrew, an Adventis Corp. vice-president: "WorldCom is radioactive. No one is going to touch any part of it until all those investigations are closed."

"BASICALLY WORTHLESS." That's bad news for a former telecom titan trying to stay alive. Any bankruptcy reorganization plan will surely require at least some asset sales -- even if the $35 billion company emerges largely intact, as WorldCom CEO John W. Sidgmore wants. But right now, he'll be hard-pressed to sell even the most harmless of assets, many analysts think.

Take its wireless resale business, which lost $750 million on $1 billion in revenue last year. Sidgmore has been trying unsuccessfully for weeks to sell the unit. Now, WorldCom is going ahead with simply dismantling it to cut losses. Nor could Sidgmore interest any buyers in consumer long-distance unit MCI, which has been showing declining revenues. "It's basically worthless right now," says Susan Kalla, a telecom analyst at Friedman Billing Ramsey & Co.

When Sidgmore does get offers, they're ridiculously low. IDT Corp. (IDT) offered $4 billion for WorldCom's local carrier unit MFS Communications -- less than half of what WorldCom originally paid for it. "The offer was bizarre," says a frustrated Sidgmore, who so far has turned it down.

TOP-DRAWER CLIENTS. As the second-largest telecommunications company, WorldCom should be worth plenty in pieces. Its stellar roster of big corporate clients include Nasdaq, AOL Time Warner, and FedEx. Its data network carries more than half of the world's e-mail. And MCI remains No. 2 behind AT&T in the long-distance carrier market.

Both the data network, which serves largely big corporate customers, and MCI would give the Bells access to markets they've struggled to gain entry to. "WorldCom still has a pretty powerful franchise," says Richard Klugman, a telecom analyst at Jeffries & Co. "The Bells would love to own it."

Except not right now. Gone are the days when the Bells could use their inflated stocks to purchase rivals, as some of them did during the '90s boom. Even conservative Atlanta-based BellSouth, which stayed on the sidelines during much of the boom, has seen its stock nearly halved to the $20 range in the past several weeks. Analysts have long considered BellSouth a likely buyer of WorldCom's data or long-distance unit.

TOO HAIRY. Perhaps the biggest potential woe in a WorldCom asset deal: A new owner would still be liable for any fines levied by the government. And a large fine or indictment of senior management or the company as a whole could quickly sink WorldCom's prospects. That's what happened at Arthur Andersen, where customers bailed out when the government sued. Says one Bell executive: "WorldCom has too much hair on it right now."

Who needs additional problems when the economy and the markets are already so hairy? If Wall Street and the telecom sector can end their slide, some buyers may emerge. But WorldCom's bankruptcy is one sale customers are steering clear of for now -- never mind the prices. By Charles Haddad in Atlanta, with Heather Timmons in New York

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