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WorldCom Emerges From Bankruptcy As MCI

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  • WorldCom Emerges From Bankruptcy As MCI

    By MATTHEW BARAKAT, AP Business Writer

    McLEAN, Va. - WorldCom Inc. walked away from $35 billion in debt and a history tainted by scandal Tuesday, emerging from Chapter 11 bankruptcy and changing its name to MCI, the long distance phone business it acquired in 1998.

    The Ashburn-based company is emerging into a telecommunications industry that is no less competitive than in July 2002, when WorldCom filed for Chapter 11 protection after an accounting scandal revealed up to $11 billion in inflated profits.

    Chief executive Michael Capellas acknowledged the challenges his company faces, but said MCI is prepared.

    "When I took this job 16 months ago, I told our 50,000 employees that we would do all the right things, and we would make history," Capellas said in a conference call Tuesday with reporters. "We don't view this as the finish line, but the time to start a new race."

    Capellas said the company emerges with its customer base largely intact, and expects to expand its base by providing network security services to its customers and taking advantage of its extensive communications infrastructure network.

    The bankruptcy process has allowed the company to slash its debt from $41 billion to about $6 billion. That will shave $2.1 billion a year off interest payments for a company producing about $21 billion a year in revenue.

    While MCI's reduced debt load may provide it with a competitive advantage, the company still faces significant challenges, experts say.

    The company's biggest challenge will be to navigate pricing pressures, said Muayyad Al-Chalabi, managing director of telecommunications consulting and research firm RHK.

    "The question is, 'Can they reduce their costs enough to match the expected revenue decline?'" Al-Chalabi said Monday.

    WorldCom has already warned that it expects revenue to drop 10 percent to 12 percent this year. It has taken steps to reduce costs, especially through job cuts. Last month the company announced plans to lay off 4,000 workers, reducing its work force to about 50,000 employees.

    Another challenge is that, like many companies emerging from bankruptcy, MCI's board will be heavily influenced by bondholders who bought up WorldCom's debt at fire-sale prices.

    The bondholders' primary interest is often to ensure that they are repaid for their investment as soon as possible, which might not be conducive to fostering a long-term vision at the company.

    MCI's court-appointed monitor, former Securities and Exchange Commission (news - web sites) chairman Richard Breeden, has imposed some restrictions on board members to make their process more transparent, including a requirement that directors provide two weeks' notice before selling MCI stock.

    Jerry Reisman, a bankruptcy lawyer in Garden City, N.Y., said he believes the company is well positioned to compete and discounted the notion that customers and clients will shy from the company because of its past.

    Indeed, the company said it lost none of its top 100 customers during the bankruptcy process. And in January the U.S. government, which collectively is the company's biggest customer, lifted a six-month ban that had prohibited WorldCom from bidding for new government contracts.

    Many of the people who contributed to WorldCom's scandal are gone. All the senior executives and board members from the reign of former Chief Executive Officer Bernard Ebbers are gone. Five executives, including former Chief Financial Officer Scott Sullivan, have pleaded guilty to federal charges for their role in the accounting scandal.

    Ebbers has pleaded innocent to charges including conspiracy and securities fraud.

    Not only are the executives gone, but the company headquarters have moved from Ebbers' home in Mississippi to Ashburn, Va., in the suburbs of Washington, D.C., where MCI had been based before it was acquired by WorldCom in 1998.

  • #2
    that's a bunch of shit how they basically got off scott-free, and now have virtually no debt. unbelievable how that ever passed.
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