NEW YORK (CNN/Money) -
Bernard Ebbers is out as CEO of WorldCom Inc., as questions about $366 million in his personal loans from the company, a federal probe of its accounting practices and concerns about its finances apparently forced out the man who turned a small Mississippi long-distance company into one of the world's biggest telecom providers.
WorldCom said Tuesday that Vice Chairman John Sidgmore will succeed Ebbers. The Wall Street Journal, which first reported the news, said Ebbers first made the offer to resign Friday under pressure from the company's independent directors. However, WorldCom made no mention of this in its brief statement.
Shares of WorldCom (WCOM: up $0.11 to $2.46, Research, Estimates) were up about 6 pecent in late-afternoon trading. It traded in a wide range Tuesday, being down as much as 13 percent in early Tuesday trading and up as much as 15 percent at midday. The stock has been battered recently, plunging nearly 30 percent in heavy trading Monday. Shares have lost more than 80 percent of their value since the beginning of the year.
Most of that drop occurred since an April 19 revenue and earnings warning prompted widespread downgrades by analysts and by rating agency Standard & Poor's, which put WorldCom's long-term debt just above the lowest investment grade, only two steps above so-called "junk" status.
That news followed a March 11 statement from WorldCom that it faced an investigation by the Securities and Exchange Commission about its accounting practices as well as loans to officers. The largest of those was $366 million in loans to Ebbers at interest rates between 2.2 and 7 percent.
The company stepped in to make the loan after a drop in the value of Ebbers' WorldCom stock that had been used as collateral on a separate line of credit. The company's latest proxy puts Ebbers' holdings at 26.9 million shares of WorldCom stock and 697,528 shares of the tracking stock for MCI (MCIT: up $0.22 to $3.66, Research, Estimates). Those holdings are worth about $68 million based on Tuesday's trading prices.
Sidgmore repeatedly told analysts that the company is not at any risk of filing for bankruptcy protection despite about $29.3 billion in debt on its latest balance sheet.
"We don't believe that in any way, under any scenario, will we run out of cash in the foreseeable future," he said. "We are cash flow positive. This is a real business. We have a lot more confidence in the business than I guess anybody else does."
Sidgmore tried to characterize the company's problems as more perception than reality in a conference call he held with analysts Tuesday.
"I'm not here today to say I'm going to single-handedly turn things around and that Bernie made all these mistakes," he said. "What I'll say is the Street and the media have a more negative impression of the company financially than we should have."
He did say he and the new management team at WorldCom would do an intensive review of the company's assets to decide which are non-core, slower growth assets that could be sold. He and Chief Financial Officer Scott Sullivan, who was promoted to executive vice president Tuesday, insisted there are more than $1 billion in assets that could be sold to help reduce the company's debt levels.
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"We're going to get full value. We're not going to fire sale anything," said Sidgmore.
Sidgmore also said the company would work with lenders and bond holders to remove so-called triggers that would force immediate payment of the debt should the company's debt rating continue to fall and reach non-investment or "junk" status. Such triggers helped bring about the bankruptcy filing of Enron Corp. late last year.
But Sidgmore said that is more a result of the management trying to be proactive rather than due to any imminent threat of a drop to junk status. However S&P has kept WorldCom's long-term debt on CreditWatch, meaning it is possible there could be a further downgrade.
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Ebbers got into the long-distance telephone business in 1983 with a Jackson, Miss., company known as LDDS. He grew the company through a series of acquisitions and changed its name to WorldCom in 1995. In 1998, he bought MCI, the nation's No. 2 long-distance provider behind AT&T Corp. (T: Research, Estimates), for $37 billion.
Three years ago, the company was seen as a power in the industry, using its lofty stock value to beat other suitors for an agreement to buy competitor Sprint Corp. (FON: Research, Estimates) for $129 billion, a deal that would have ranked as the largest corporate merger in history at the time. But regulators blocked the deal and a softening market for telecom services weakened the company's performance.
Even a restructuring that split its higher-growth commercial, Internet and data business from its MCI consumer long-distance offering has not helped support its stock.
Sidgmore has been vice chairman of WorldCom since 1996, having served as its chief operations officer from December 1996 to September 1998. In the past, he headed the company's Internet unit, UUNET Technologies Inc., which among other things provides the communications backbone used by many Internet service providers.
Sidgmore's comments to analysts did not discuss the circumstances of Ebbers' departure, but his comment to the Journal suggested that Ebbers was forced out due to recent problems.
"It's fair to say that some of the directors were increasingly concerned in the last couple of weeks and Bernie was increasingly frustrated," Sidgmore was quoted by the Journal. "It's no secret that there has been a lot of pressure on the company for the past year."
Analysts were mixed about the executive move by WorldCom Tuesday. Bear Stearns analyst Robert Fagin reaffirmed his "buy" rating on the stock Tuesday, telling clients that Sidgmore is "a known entity to the Street." But Dresdner Kleinwort Wasserstein analyst Bruce Roberts became the latest to downgrade the stock, moving his recommendation to "sell" from "hold," and cutting his price target for the stock to $1 from $5.
"With $25 billion in debt, a slow economy, a declining long-distance industry, an ongoing SEC investigation, a high multiple to sales and a new CEO, the risks of owning WCOM shares far outweigh the possible upside," he wrote to clients.