WorldCom CEO Shuffle May Change Image More Than Business
By: Christine Nuzum, Of DOW JONES NEWSWIRES
Tuesday April 30, 3:57 pm Eastern Time
NEW YORK -(Dow Jones)- There was no event or dispute that precipitated the departure of former chief executive Bernard Ebbers other than mounting pressure from investors over several months, WorldCom Inc. (NasdaqNM: WCOM - ">news) (WCOM) executives said Tuesday.
Instead, it may have been the increasingly negative images that Ebbers conjured. Ebbers' $366 million personal loan from WorldCom, the largest such loan ever granted by a publicly traded company, is under investigation by the Securities and Exchange Commission.
So is the accounting for acquisitions that made him a hero to investors for cobbling together a telecommunications giant during the late 1990's. The SEC is also investigating WorldCom's billing practices.
While ousting the chief executive may dispel some negative images, it isn't clear how much it will help the operations or stability of the company. Much of the management team and the board of directors, including vice chairman and newly appointed Chief Executive John Sidgmore, have been with the company for several years.
"The problems at the company are not just Ebbers, it's the senior management team and it also includes the board," said Drake Johnstone, an analyst at Davenport Securities. "In my opinion, it doesn't serve any purpose to have the vice chairman of the board become CEO."
Nonetheless, whether because of the management changes or because of the executives' positive comments about WorldCom's liquidity on conference calls, the stock moved up nearly 7% in Tuesday trading, a modest move against several weeks of selling.
A new CEO probably won't affect the company's relationship with its banks or with customers, analysts said.
However, it may make it easier for the company to collect the $366 million loaned to Ebbers. During a conference call Tuesday, Sidgmore said that Ebbers will pay back the loan over a period of 5 years. WorldCom has also changed the loan to Ebbers into a term loan.
"It appears to formalize his liability to the company," said UBS Warburg analyst John Hodulik.
Before Tuesday, WorldCom had simply said that Ebbers would pay back the debt, without offering a schedule or other details.
Not everyone agreed with the assessment of Davenport 's Johnstone that WorldCom needs a more comprehensive management overhaul.
Alan Towers, a reputation management consultant, said that the fact that Sidgmore is already on the board is an advantage for turning things around at WorldCom.
"He'll be able to get up to speed extremely fast," he said. "He's already got plenty of stock. They don't have to load him up to get him to do what's best ( for shareholders)."
Some industry observers noted that a new CEO may be more likely than Ebbers, who founded WorldCom, to make tough decisions that may be best for shareholders, like large layoffs or a sale of the company.
"There's a business process that's standing in the way of this company being more respected. He's going to have to go and find out what it is," said Towers. "If he starts to improve the reputation, it will buy him time."
(This story was originally published by Dow Jones Newswires)
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