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Sidgmore's Last Stand

Light Reading
News Analysis
Light Reading
7/2/2002

The new President and CEO of WorldCom Inc. (Nasdaq: WCOM), John Sidgmore, is standing his ground, saying the company can still recover from the recent calamitous accounting irregularities and avoid bankruptcy.

In an afternoon conference call, Sidgmore placed the blame for the company's woes squarely on the shoulders of two of its former executives: former CFO Scott Sullivan and former senior vice president and comptroller David Myers. He also questioned the role of WorldCom’s former auditing firm, Arthur Andersen LLP, in the scandal (see WorldCom Goes Boom).

Speaking today at a press conference at the National Press Club in Washington, D.C., Sidgmore said those executives knew about the accounting practices. He also said that Arthur Andersen should, at least, have discovered the irregularities. At this point, he said, there is no way to know whether or not former CEO Bernard Ebbers knew anything about the company’s creative accounting. Nevertheless, many observers hold Ebbers, who held the position of president and CEO until the end of April, responsible for the demise of the company he built up through more than 60 acquisitions.

Sidgmore wouldn’t point fingers at anyone else at WorldCom, saying the rest of the management team and the board had no way of knowing what was going on, due to the size and far-flung structure of the company. Everything came together at Sullivan’s level, he said, stressing the level of power the former CFO had and the amount of confidence the rest of the company had in him. Speaking of Sullivan in the past tense, Sidgmore said, “Scott was an extraordinary person.”

“Our intention is to get to the bottom of this whole thing... We want the bad guys exposed. We want the bad guys punished… and then [we'll] move on with our lives,” Sidgmore said, emphasizing that his is a new management team. As for moving on with our lives: in his opinion, it will take at least a few months before the investigations into the company’s accounting practices are concluded.

Trying to hold an optimistic tone, Sidgmore insisted that WorldCom can survive the scandal and restructure without having to file for bankruptcy. With nearly $2 billion in cash in the bank, the company is poised to survive financially for a long time, he said. And although the company’s banks have warned that it is in default on some credit lines, they have not yet demanded that the company repay its entire $30 billion debt load in full.

Sidgmore believes the banks are starting to realize that the company is worth more to them if it avoids bankruptcy. “I’m being brutally open and honest with you,” he said. “The real issue hinges on what the banks do.”

Sidgmore did say that unforeseen financial events could increase pressure on the company to file for bankruptcy -- for example, if customers suddenly stopped paying their bills. He also admitted that some of WorldCom's vendors had started asking for better payment terms, including more payment up front.

The first debt payment that might cause the company headaches would be a bond payment of $2 billion, coming due next January, he mentioned.

Sidgmore insisted today that the company hadn’t lost any major customers. However, he did admit that some customers, including several government agencies, have indicated that they’re very nervous.

Speaking of the wireless business, which the company has already announced it wants to sell, he said this move isn't being taken for want of capital, but more out of an urge to exit what has become a “flat-out terrible business.” In addition to these wireless assets, the company is in negotiations to sell its South American assets, some of its Japanese assets, and some real estate that it no longer needs, he said.

Sidgmore also indicated that there might be more layoffs in store, in addition to the 17,000 people the company began laying off on Friday.

— Eugénie Larson, Reporter, Light Reading
http://www.lightreading.com Check out Light Reading's July Research Poll on this topic to find out what others think about who's to blame for Worldcom's woes, and whether there's other skeletons in its cupboard.

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erbiumfiber
erbiumfiber
12/4/2012 | 10:10:19 PM
re: Sidgmore's Last Stand
John Sidgmore: Truth, justice, and the American Way...

He apologized for the Worldcom fraud and said the future of the way the company conducted business going forward (umm, like weren't you also an officer in the past??) was squarely on his shoulders...

The defense of our great nation also depends on WorldCom as does that great friend of the consumer: "choice and competition" in the market place...

Towards the end I thought I could hear "America the Beautiful" playing in the background and see the image of the American flag, proudly waving on the background behind Sidgmore's head...

Worldcom: America's Friend...

It was touching...and increased the stock price 100% to a big 12 cents (hmmm, I'm up 50% on the thousand shares I bought at 8 cents...)

Go John, go! Now if the bankers won't give you the money, they will be the evil arch-villains...
nthornberry
nthornberry
12/4/2012 | 10:10:18 PM
re: Sidgmore's Last Stand
It was very patriotic and inspiring. How appropriate for July 4th week!

I just hope that this all doesn't start to get seriously unwound next week as the "new" management and the "old" management team all show up to get a grilling on the Hill.

At that point I'm hoping that Sidgmore will be able to brush past the issue that he has been WCOM's Vice Chairman and a board member before becoming CEO. Also his management team are the same folks that were there before. Not that they are bad - but they are not new. But Sidgmore is a class act - give the fella a chance.
BobbyMax
BobbyMax
12/4/2012 | 10:10:18 PM
re: Sidgmore's Last Stand
Considering the massive corruption within WorldCom, the US Goverment should no award any contract them.

The US Congress or the Depatment of Justice are not likely to take action any company. Any investigation or prsecution would cause foreign investment in trillion of dollars would dry up.
lightpimp
lightpimp
12/4/2012 | 10:10:14 PM
re: Sidgmore's Last Stand
Fundamentals really stink right now and will continue for quite sometime. A relief rally of sorts is on its way soon. Some of these are beat up very badly and are heavy on the short side IMO.
jgh
jgh
12/4/2012 | 10:10:04 PM
re: Sidgmore's Last Stand
Sidgmore is another Pontius Pilate in the executive boardroom, washing his hands of the previous leadership. He wasn't complaining when he was cashing in his options.
He has to go and they need to bring in someone from the outside on an interim basis to try and save the company, someone who has no ties to the telecommunications industry, how about Jack Welch, Lou Gerstner, etc. They need an independent, credible person or else Worldcom is going the way of Global Crossing. Look for the vultures to be circling pretty soon.
pulpystump
pulpystump
12/4/2012 | 10:10:01 PM
re: Sidgmore's Last Stand
Wish I would have taken my wife's advice and bought a bunch of WCOME yesterday at $.06 like she did. It hit $.29 today.

I could have used a nice little one day 5x bump in my portfolio.

She's buyin' dinner!
switchrus
switchrus
12/4/2012 | 10:10:00 PM
re: Sidgmore's Last Stand
G«£Sidgmore insisted today that the company hadnG«÷t lost any major customers. However, he did admit that some customers, including several government agencies, have indicated that theyG«÷re very nervous.G«•

Well one thing for sure, Sidgmore is pulling out all the stops to save World Com, including National Security, see link. I donG«÷t know whoG«÷s advising the company on crisis management, but they are doing a good job so far.

http://www.washtimes.com/busin...

I would guess the next G«£playG«•, will be to offer up control of a set of network assets servicing G«£national securityG«• to a third party with guarantied funding to keep those assets running no matter what happens to World Com.
BobbyMax
BobbyMax
12/4/2012 | 10:09:46 PM
re: Sidgmore's Last Stand
WorldCom has committed fraud of the worst kind. The crimes of this company because of a new CEO. He is a company veteran. I find it extremely hard top believe his story.

"Dr." Sidgmore took advantage of the company stocks. He cashed it all at the most convenient time. Many kind of corruptions are prevelent in American Corporations. The US Government covers up these crimes so that trillions and trillions of dollars keep flowing in. The US government will not take any action or any meaningful legislation that wipes of corruption from the US corporations.

The news media never covers the entire story and is not willing criticize because the reporters may lose their jobs. The cycle of corruption continues decade after decade.


There are so many people who benefit from these kind of corruptions. These beneficiaries make the defenders of the corporations. Corruptions are not limited to just a few companies. Almost every CEO steals money from the company in one form the other.

Most of the shareholders, our average citizens, have lost a lot of money.
mc_jaded
mc_jaded
12/4/2012 | 10:09:45 PM
re: Sidgmore's Last Stand
http://www.rtwreport.com/artic...

The Telecom Death Spiral
July - If you thought that the telecommunications market was in turmoil now, just wait, it's going to get much worse

By: Paul Philp

July 2002

The death spiral in the telecommunications industry has accelerated over the past month. We don't want to rehash the sensational news from about fraud at WorldCom except to understand that it points a spotlight on the troubles in the industry. The cost of building long distance infrastructure has been dropping for twenty years. The infrastructure overbuild sparked by the Internet accelerated this process. The lower costs have led to increased competition and a massive price war. The long distance business has been a negative cash flow business for more than five years.

This situation leaves the large long distance companies paying off the debt incurred to build their networks from a decreasing revenue and cash flow. The assets financed by the debt decrease in value faster than the companies amortize them. The long distance business has been weakening on the income statement, cash flow statement and the balance sheet. The fraud at WorldCom shows how desperate the situation has become. The long distance business, as it is currently structured, is now bankrupt. We are simply waiting for the existing cash pools to reduce to zero. WorldCom will file first but Sprint and ATT Business Services will not be far behind.

The Internet was the great hope for the telecommunication industry. The Freedom of Communication Act of 1996 was supposed to open the field up to competition and enable a new era of communications services enabled by the Internet. What was spawned was the largest technology-driven bubble since the American railway bubble in 1845. Trillions of dollars were spent building competing Internet backbones. The resulting overcapacity sparked a bloody price war making it impossible for the new Internet providers to service their debt. The Internet service business, as it is currently structured, is now bankrupt and most providers have already filed for bankruptcy protection.

If the current situation looks terrible, it is about to get worse. The best of the networks that enter bankruptcy are being recapitalized. The resulting companies will emerge with the combination of the best networks and a much lighter debt load. This will allow these companies to lower prices even more. The networks that have not been bankrupted will match the lower prices and accelerate their own eventual bankruptcy. Eventually this dynamic will force every long distance and Internet backbone operator to file for bankruptcy.

The situation is complicated by the fact that the increased competition was never really possible under the 1996 Act. In fact, the Act increased the monopoly power of the incumbent local exchanges (ILEC), the regional Bell operating companies. These monopolies have yet to upgrade their networks as promised and their monopolistic practices make competing at the customer end almost impossible. These companies are very profitable and they generated a cumulative $6B positive cash flow last year.

There are 27 major telecommunications services providers in the United States today. It is likely that 23 of these companies will cease to exist before the restructuring of the industry is complete. It is also likely that the only surviving companies will be the current ILECs. It could take the rest of this decade for this restructuring to be completed. This makes investing in the telecommunications providers and the network equipment providers extremely risky.

The situation is very much like the 1845 railway bubble. All the pioneers who invested money to build the original railway infrastructure lost all their money. After the bubble burst, the railways and the equipment providers under performed the overall market for almost 40 years. It will not take 40 years but it will be a long time before the telecommunication industry is a safe place for investors.



gea
gea
12/4/2012 | 10:09:45 PM
re: Sidgmore's Last Stand
Bobby Max...aka Harvey Mudd...

Is well known for pulling figures and numbers entirely out of thin air. Likewise, you can bet these numbers and specific accusations have no basis in reality.

"Trillions and trillions of investment dollars"? Again, I challenge you to give even the slightest shred of evidence for these completely facetious claims. If your acusations weren't so laughable, they'd be actionable.

Don't get me wrong...it's not like I think there's no corruption in these companies. But "Bobby Max" will get people to believe there isn't, precisely because his 'facts" are so laughable.
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