Analysts say more than Ebbers' departure may be needed to keep WorldCom afloat
Tuesday, April 30th 2002, 12:00 am
By: News On 6
CLINTON, Miss. (AP) _ WorldCom Inc.'s attempt to regain investor confidence likely will take more than replacing the man most closely associated with the telecom's rocket rise and recent financial woes, an industry analyst says.
Drake Johnstone of Davenport & Co. in Richmond, Va., said John Sidgmore, WorldCom's new president and chief executive, needs to quickly make clear how he'll restore dwindling revenue.
Sidgmore on Tuesday replaced WorldCom founder Bernard J. Ebbers, who resigned a day earlier amid pressure from the board of directors.
WorldCom stock has traded at 10-year lows in recent weeks because of worries about its ability to pay back $28 billion in debt and an ongoing Securities and Exchange Commission investigation into lending and accounting practices.
``In my view, to support the stock price and placate bondholders, I think one of the first things he'll do as soon as possible is cut capital expenditures,'' Johnstone said. ``That will help generate cash flow.''
While reporting first-quarter earnings last week, WorldCom said capital expenditures are expected to be $4.5 billion this year for WorldCom Group, the sector of the company that provides Internet and data services to large customers.
On the long distance and consumer services side, known as MCI Group, the company said it was cutting capital expenditures by $100 million to $400 million in 2002.
In light of the SEC investigation, Johnstone said Sidgmore might opt to make changes in senior management ``to show he's serious about turning over a new leaf for the company.''
Sidgmore told analysts Tuesday that creating a new perception for the Mississippi-based company was important. He criticized himself and other managers for not ``communicating our strengths to either Wall Street or the press.''
Sidgmore said he'd spend the next several months evaluating assets and trying to determine how to reduce debt, but his focus will be on growth.
David Burks, an analyst with J.J.B. Hilliard, W.L. Lyons in Louisville, Ky., said investors will be eager to hear more of Sidgmore's vision for the company.
``Things have been spiraling downward so fast,'' Burks said. ``At this point, from a perception standpoint, the company needs something to show that it's not business as usual.''
WorldCom, riding high on Wall Street a few years ago, has seen investors back away in recent months.
Eight equity analysts downgraded WorldCom shares last week, days after the company slashed its revenue and profit forecasts for 2002.
At the same time, bond ratings agencies Moody's Investors Service, Standard & Poor's and Fitch all cut their long-term credit ratings on WorldCom's debt.
WorldCom's first-quarter earnings report showed profits for the company's core businesses plunged 66 percent as corporate clients reduced spending.