Frantically Paddling to Keep WorldCom Afloat

CEO Sidgmore has a rescue plan, but it's a long shot

To most anyone outside of its offices, WorldCom Inc. (WCOM ) looks like a company that has lost control of its future. When it admitted in late June that it had misaccounted for nearly $4 billion in expenses, it sparked outrage across the country and helped provoke President George W. Bush to call for a crackdown on corporate criminals. Bernard J. Ebbers and Scott D. Sullivan, the company's former CEO and chief financial officer, respectively, were hauled before a congressional committee and publicly berated. Meantime, the company seems to be hurtling toward bankruptcy, with $32 billion in debt it can't pay and a stock price that's cheaper than a can of soda pop. Add it all up, and most telecom experts say WorldCom is going to have to sell off all of its assets and close its doors.

Just don't tell that to John Sidgmore. The company's new CEO is determined to save WorldCom, albeit as a smaller company. He wants to sell off a handful of assets to give creditors some cash and then persuade them to trade their debt for equity in a new, leaner WorldCom--with him at the helm. The company would focus on selling voice, data, and Internet services to business customers. At its core would be UUNET, the company that carries more than 50% of America's Internet traffic and counts among its customers the Nasdaq stock exchange and the U.S. military. In a sense, Sidgmore is trying to return to his roots--he took UUNET public in 1995 and ran it before WorldCom acquired it. "We'll sell off noncore assets and refocus ourselves," says Sidgmore. "We'll be stronger if we can trim ourselves down to a leaner, simpler-to-understand organization."

Sidgmore is peddling several assets that could raise up to $4 billion. They include the company's wireless business and the Skytel Communications Inc. paging business, which is valued at about $1 billion. He also would like to sell the MCI Group long-distance business, which is worth about $2 billion, but there are no takers so far because of the debt and other conditions WorldCom insists on in such a sale.

Will creditors go for Sidgmore's plan? It will be tough getting all the parties to agree. But Sidgmore does have a small chance of pulling it off. Many bondholders agree with his argument that they will get more from taking equity in the new WorldCom than if they force a liquidation at today's distressed prices. UUNET, after all, is expected to increase revenues 20% per year, to $14.3 billion in 2003. "There is enormous potential there," says Matthew Breckenridge, vice-president at DebtTradersLtd., a high-yield investment firm that owns WorldCom debt. Adds a lawyer representing another bondholder: "WorldCom would be a fabulous company if it cleaned up its balance sheet."

Banks may go along with the deal, but at a high price. They're now owed $2.65 billion, compared with the $29 billion due bondholders. Deutsche Bank (DB ), J.P. Morgan Chase & Co. (JPM ), and several other banks are offering to loan Sidgmore $3 billion in cash to keep WorldCom going, but only if they are repaid their $2.65 billion immediately and the new loan is secured by the company's assets. "That, of course, would piss off the bondholders," says Sidgmore. "It's a balancing act, with me trying to find the right offer that will get bondholders and the banks on board."

Sidgmore may very well take a tumble in the weeks ahead. Creditors could demand his ouster if he is implicated in the company's accounting scandal. He's facing a cash crunch because customers skittish about WorldCom's financial health are delaying payments and suppliers are demanding cash up front for equipment and other goods. If WorldCom doesn't get the new financing from the banks or elsewhere by September, the company likely will run out of cash. "Sidgmore has a very difficult task in keeping the company intact," says Blair Levin, a telecom analyst at Legg Mason Inc. Still, he's determined not to turn his back on his roots.

By Charles Haddad in Atlanta, with Steve Rosenbush in New York

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