RealTime IT News

Capellas Takes WorldCom Reins

Following a week of speculation, WorldCom Friday made it official: the down-and-out telco signed former Hewlett-Packard President and Chief Operating Officer Michael D. Capellas as its new chairman and chief executive officer. Capellas left HP Monday after seeing through HP's merger with Compaq.

"I took this job because I am convinced that WorldCom has the assets, the customers and the people to regain a leadership role in this industry," Capellas said in a statement Friday morning. "In order to do this, we must first regain trust and win respect. Accordingly, together we will rebuild WorldCom into a model of good corporate governance and management integrity."

Capellas added, "Today we are launching a new company, one that will reclaim the strengths of its past and focus on a promising future."

"I remember when this company was founded with a vision of convergence of computers and the Internet. WorldCom has always been on the forefront of this trend and will continue to lead it," he said. "I have spoken to many groups - creditors, managers, and board members -- and it is everyone's desire to see this company succeed. WorldCom is made up of 60,000 hard-working men and women of high integrity, dedicated to quality of service and innovation. It is a company with great brands and a diverse and first rate customer base, and a company that plays a central role in our nation's communications industry."

WorldCom is under intense scrutiny by regulators, and the Securities and Exchange Commission expanded its civil fraud complaints against the bankrupt telecommunications firm last week after it said it might have to restate about $9 billion in revenue.

The SEC added more fraud charges to the lineup against the company, which it first leveled against the telco in June after WorldCom revealed it had overstated close to $4 billion in revenues. The latest amended complaint charges that WorldCom violated laws regarding record-keeping. Filed in federal district court in New York, the suit also broadens its charge that WorldCom misled investors from at least as early as 1999 through the first quarter of 2002.

WorldCom's bankruptcy filing in July, after it first revealed accounting errors and misstatements in the wake of the Enron and Global Crossing scandals, ranks it as one of the largest in corporate history.

Two WorldCom officials, former controller David Myers and former CFO Scott Sullivan, are facing federal criminal charges of falsifying the company's balance sheets in order to allegedly hide $3.8 billion in expenses. Myers has pleaded guilty to securities fraud charges. Two other former WorldCom officials have also pleaded guilty to fraud and conspiracy charges related to attempts to cover up about $7 billion in expenses. The Justice Department's criminal investigation of WorldCom is also ongoing.

In addition, a federal bankruptcy court examiner recently reported that WorldCom took "illegal steps" to gloss over its deteriorating finances and estimated that accounting fraud as a result exceeded the $7 billion that investors already know about.

WorldCom said the $9 billion restatement estimate would not impact its ability to "provide service to its customers nor on its ability to emerge from bankruptcy protection, which it expects to take place in mid-2003."

Capellas Friday gave strength to that assessment, noting that he was encouraged by the company's stabilized financial position, which he said includes more than $1.4 billion in cash. He also praised the steps that the company's current management has taken to prevent improper conduct in the future.

"The company, at its roots, is still fundamentally strong," Capellas said, noting that customers that he spoke to while performing due diligence agreed that WorldCom's service quality is the best in the industry.

He expounded on his three goals for the next 100 days, the first of which, in his words, is "customer first, customer first, customer first."

While noting that WorldCom's customers remain very loyal, despite the firm's difficulties, he said, "We're going to have to go out and really make sure we take care of them."

Secondly, Capellas said that he would focus on energizing the embattled firm's employees. Thirdly, he committed to ensuring that the firm does not again find itself in a questionable position. "We will have an unwavering commitment to the highest possible standards of integrity," he said.

"The creditors committee fully supports and endorses the appointment of Michael Capellas to lead WorldCom," said Irwin Gold, senior managing director and co-head of restructuring group Houlihan Lokey, which serves as financial advisor to the Official Committee of Creditors. "We are optimistic that the skills he brings will add significant value to the company and its customers."

The bankruptcy court must approve the terms of Capellas' compensation, and the company said it plans to seek approval as early as today. Capellas will take charge of WorldCom on Dec. 2.