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Commentary > The Bottom Line
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WorldCom: Picking up the pieces
The new CEO is first-rate -- but his hands are tied.
May 2, 2002: 3:34 PM EDT
By Adam Lashinsky, CNN/Money Contributing Columnist

PALO ALTO, Calif. (CNN/Money) - Shareholders and debt holders of WorldCom can take two approaches to the sickening news unfolding daily about their company.

They can take heart that the company's new CEO, John Sidgmore, is universally admired as a smart and tough telecommunications executive. Or they can take a sobering look at the numbers, which aren't pretty.

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Let's consider the situation in that order. Sidgmore is one of the few guys in the telecom world to enter the 21st century with an intact reputation. He cut his teeth at General Electric and eventually headed Internet backbone UUNet, which he sold to MFS Communication, which in short order sold out to WorldCom (WCOM: down $0.17 to $2.04, Research, Estimates).

Sidgmore is a straight shooter. When infamous Internet software blowup Microstrategy (MSTR: down $0.03 to $1.88, Research, Estimates) needed a grownup around, it asked board member Sidgmore to help out. He did, and the company is profitable today (though its shares, once above $280, still are below $2).

Sidgmore has vowed that WorldCom won't need to declare bankruptcy because it has good businesses and real customers. All true. The question, however, is whether Sidgmore is really qualified to make those statements. Bankruptcy and restructuring just aren't his bags. He's a buyer, a builder and a fundraiser, not a cost-cutter.

"Being a CEO, especially a CEO of a company that is about to enter the ring for a death match with bondholders, is not for the inexperienced," says Paul O'Neil, fund manager for Toronto's Knight Bain Seath & Holbrook and a frequent critic in this column of the telecom companies he's avoided owning for many months. (He accurately predicted more bad news for Nortel, Qwest and JDS Uniphase, to name a few, when things already looked plenty bad.)

"What WorldCom needs now is a hardened, seasoned outsider that will take a butcher knife to costs and sell off assets ASAP," says O'Neil. The longer they wait to sell, the lower the price will go for their assets."

And that's where an unfortunate discussion of the numbers becomes grim. O'Neil notes that on its balance sheet, WorldCom values total property, plants and equipment at about $40 billion. But O'Neil doesn't believe that number because he thinks WorldCom is depreciating its assets too slowly. That bond traders award WorldCom debt about 50 cents on the dollar suggests Wall Street overall doesn't believe the stated asset value either.

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WorldCom, combined with its MCI Group tracking stock, has about $29 billion in long-term debt. And O'Neil thinks that within a year, that will be roughly the stated value of WorldCom's assets. When collected stuff equals accumulated debt, there's nothing left for shareholders.

This is why WorldCom's shares keep falling, ending Wednesday down another 27 cents -- or 11 percent -- to $2.21. "There's a real company there," says O'Neil, but "the chance that WorldCom avoids Chapter 11 gets slimmer by the day."


Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at adam_lashinsky@timeinc.com.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.