Sidgmore's Last Stand
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.