More news on the telco overextension:
I didn't quite know what to think about this one:
WASHINGTON--Bernard Ebbers, president and chief executive of WorldCom, filed to sell more than $84 million of company stock to meet obligations under a margin lending arrangement, according to officials at the long-distance provider.
WorldCom, based in Clinton, Miss., has seen its stock fall almost 47 percent so far this year. Recent setbacks included a failed bid to acquire Sprint and forecasts that sales growth would slow during the second half of this year.
Ebbers has been a big supporter of WorldCom stock during the 1990s, buying shares as recently as 1997. His last sale of WorldCom stock came in 1995, according to insider data compiled by the Washington Service.
The Securities and Exchange Commission released documents today in which Ebbers reported that he would sell 3 million common shares, or more than 15 percent of the 19.4 million shares he owned outright as of April 11. Claire Hassett and Brad Burns, representatives for WorldCom, said the sales are intended to cover margin calls.
Ebbers in the SEC filing listed Sept. 28 as the date of sale for the 3 million shares. According to the filing, he purchased the stock in the open market in 1996.
In a customary margin lending arrangement, an investor such as Ebbers will borrow money from a brokerage to purchase stock. Those shares will be pledged as collateral for the loan.
When the value of the securities declines, the broker will make a margin call, requiring the investor to pay down the loan. If the investor fails to respond in time, the broker can sell the securities to repay the borrowings.
Earlier this year, Barry Hertz, chief executive of Track Data Corp., sold 17 million shares of the online data company he founded to meet margin calls. Hertz had used 25 million Track Data shares as collateral to borrow money to buy stock in other companies. He had lost $45 million on the investments.
However, the SEC filing contained information that suggested the transaction involving Ebbers differed from the usual margin lending arrangement. The filing said that the 3 million shares were part of a secured forward sale contract. WorldCom executives declined comment on the forward contract. |
