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Is Capellas Right for WorldCom?

The latest talk of the Telecom town is that WorldCom Inc. (OTC: WCOEQ) has finally decided who will replace exiting president and CEO John Sidgmore, and that the company could make its decision known as early as this week.

Following news yesterday that the president of Hewlett-Packard Co. (NYSE: HPQ) and former chairman and CEO of Compaq, Michael D. Capellas, 48, had suddenly resigned, a source close to WorldCom, who asked not to be named, confirmed that he is the most likely candidate for the position.

A Wall Street Journal report yesterday stated that Capellas could be presented before WorldCom’s creditors' committee as early as Wednesday. If that happens, it would bring to an end months of speculation over whom the company will choose to try to lead it out of bankruptcy (see WorldCom: See Ya, Sidgmore).

WorldCom declined to comment on the rumors, and Hewlett-Packard hadn’t return calls by press time.

Several industry observers say they think Capellas would be a good choice for WorldCom. "A high-profile CEO certainly increases the odds of the company emerging from bankruptcy,” says John Hodulik, an analyst with UBS Warburg.
“I would say this is a good sign for them."

Unlike former WorldCom CEO Bernard Ebbers, whose aggressive acquisition strategy has received much of the blame for the accounting scandals surrounding the carrier, Capellas is viewed as a conservative, cautious strategist. He is credited with bringing stability, if not massive growth, to Compaq after he took over the company in 1999.

“Getting someone with a conservative approach might be the best move in the world right now,” says Frank Dzubeck, president of Communications Network Architects. “He’d be a good one for the job."

Other observers, however, fret that Capellas does not have a telecom carrier background. While not being immersed in the scandals that have plagued the industry is certainly a positive thing, being an outsider also means a much steeper and slower learning curve.

"If his background doesn’t include successful experience in putting together a lot of different operations, I don’t see the point… That’s the only reason they’d hire someone from outside,” says Network Conceptions LLC analyst Phil Jacobson, insisting that Capellas doesn’t seem to have much experience in that area. “Usually, the CEO likes to bring in his own team, but in this case the whole team is from outside the industry… It just surprises me a little.”

Of course, there is still plenty of confusion surrounding a possible appointment. The rumors appeared on the same day as the New York Times printed an interview with Sidgmore in which he acknowledged that the company had narrowed the search down to just two candidates. He also said that none of the press reports so far had come close to guessing the candidates under consideration.

No matter whom the bankrupt carrier chooses to lead it out of bankruptcy protection, the job isn’t going to be easy. Only last week, WorldCom admitted that its earnings misstatements for the past couple of years total more than $9 billion, and most observers expect even more accounting problems to come out of the woodwork in coming months (see WorldCom Restatements Top $9B).

There is also the issue of compensation. As the WorldCom board continues to seize assets belonging to former CEO Ebbers in an attempt to get back some of the $415 million he borrowed from the company, the company’s court-appointed monitor, Richard Breeden, is not likely to allow the new CEO to receive anything like the salaries and compensation that former leaders of the company enjoyed. It is uncertain whether Capellas could expect to get as much as he was making at HP. According to a Securities and Exchange Commission (SEC) filing, Capellas’s annual salary for 2001 was $1.6 million, and he received $2.1 million in other compensation.

— Eugénie Larson, Reporter, Light Reading
www.lightreading.com
achorale 12/4/2012 | 9:22:05 PM
re: Is Capellas Right for WorldCom? After reaping a windfall for leaving the merged company he moves on to the next. Wonder what Compaq and HP employees feel about this.
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