WorldCom Plans Re-Emergence
WorldCom hopes to take the MCI brand back as its name when it re-emerges. Wholesale services will be sold under the name UUnet. MCI's corporate headquarters will move from Clinton, Miss., to Ashburn, Va. And Robert T. Blakely, an exec with experience on the Financial Accounting Standards Advisory Council is taking the helm as CFO (see WorldCom Reorganizes, Becomes MCI).
"This is the first day of execution of our three-year strategic plan," said CEO Michael D. Capellas in a media conference call briefing this morning. He said WorldCom has successfully completed the basic steps needed to emerge from Chapter 11 protection, outlined in the "100 Day Plan" unveiled three months ago (see Capellas Sets 100-Day Strategy).
During that time, Capellas noted, WorldCom has worked hard to reverse the damage done by its spectacular collapse, the largest bankruptcy in U.S. history, which saw its founder and top execs investigated by the government and/or taken to law (see WorldCom Files for Bankruptcy and Ex-WorldCom Execs Charged With Fraud).
Steps included the start of a management housecleaning, a workforce reduction of 5,000, and a return to modest profitability (see WorldCom Details Cost-Cutting Plan and Worldcom Turns a Profit in January). But, as Capellas acknowledged today, "We still have a lot to do."
WorldCom has filed a final Plan of Reorganization with the U.S. Bankruptcy Court for the Southern District of New York, which has overseen the carrier's proceedings with creditors. The plan, which WorldCom hopes will be finalized in the "September-October" timeframe, calls for WorldCom's bondholders to settle for a package deal in which they'd receive a set and final amount for what they're owed. WorldCom says the plan has the nod from more than 90 percent of the bondholders.
If the plan is approved, WorldCom will emerge with $4.5 billion to $5.5 billion in new debt, about $1 billion in cash, and $350 million in capital leases, according to Capellas.
The possibility that WorldCom could have over 80 percent of its debt canceled has long spurred negative industry buzz. Some say the carrier isn't getting its just desserts (see WorldCom, Chertoff, and the SEC, Oh My!). Others speculate that newly hatched WorldCom, free of most of its debt, could set off a price war, putting teetering competitors out of business (see The Post-Chapter 11 Hangover ).
At least one analyst doesn't see this happening. "If you've been reading their monthly reports, you can see that without interest payments they're still losing money," says analyst F. Drake Johnstone of Davenport & Co. LLC. Once it's out of bankruptcy, WorldCom will have to pay on its new debt, even if that debt is sizeably reduced. That's not going to put the carrier in a position to cut prices, Johnstone says.
What's more, he says WorldCom will continue to see its consumer division under pressure from the regional Bells, which are getting into the long-distance business.
Capellas says he's confident of being in a better position as the company moves forward. He pumped WorldCom's plans to reorganize its network under the IP umbrella, sell more international services, and aggressively pursue business customers, including not only its traditional large enterprise clientele but small and medium-sized businesses as well.
At least one analyst thinks WorldCom's plans could be good news for suppliers like Cisco Systems Inc. (Nasdaq: CSCO) and Nortel Networks Corp. (NYSE/Toronto: NT), which have served WorldCom's data needs in the past, as well as other vendors that may be called in to help the carrier with its universal packetization plan.
"WorldCom needs to rationalize and streamline its operations, particularly in light of competition," says Curtis Price, program director at Stratecast Partners. WorldCom got by without integrating its disparate data networks in the past, he notes, but it's not likely the carrier will maintain that risky position.
Notably, WorldCom execs said on today's call that a separate agreement must be reached with RBOCs that are owed money by WorldCom. Further details weren't provided.
— Mary Jander, Senior Editor, Light Reading