Breaking his silence a week after WorldCom first
revealed overstating
its earnings by $3.8 billion, chief executive John Sidgmore vowed to do
everything possible to avoid bankruptcy, while acknowledging the firm’s fate
is at the discretion of its lenders.
Speaking at a press conference in Washington, D.C., on Tuesday afternoon,
Sidgmore said WorldCom received default notices from some of its lenders,
but they had not demanded WorldCom immediately repay any of its $30 billion
debt.
“We are working with banks even as we speak here, talking about various
proposals to restructure,” he said. “And we are somewhat optimistic that we
will get a proposal, if not two proposals, in hand this week to accomplish
that,” he said.
Sidgmore expressed cautious confidence WorldCom would work out terms with
the lenders, adding WorldCom knew the banks would fair better with the company
out of bankruptcy.
“I’m not going to stand up here and say there’s no way we’re not going to
end up in bankruptcy, in some form, at some point,” he said.
On Monday, two WorldCom lenders holding credit facilities worth a total of
$4.25 billion notified the company that they reserved their rights to call
the loans in immediately. The company is already the target of U.S. Securities
and Exchange Commission (SEC)civil fraud
charges and investigations by Congress and the U.S. Department of Justice.
The news caused an investor stampede out of WorldCom’s already battered
shares, sending them down to trade at just pennies a share. Nasdaq informed
WorldCom that it would move to delist the company’s stock on Friday, but
WorldCom can request a hearing to stave off delisting.
“Certainly, bankruptcy gets closer and closer,” Giga Information Group
analyst Lisa Pierce said before Sidgmore’s press conference. “But companies
emerge from bankruptcy over and over again. It’s reasonably certain that it
would emerge.”
Calling the company “a very key component of the economy,” Sidgmore advanced
a version of the too-big-to-fail argument, pointing out that WorldCom helped
assure competition in the long-distance market, serves many key government
agencies (including those relating to security), and with UUNet forms a core
component of the Internet that carries an estimated 50 percent of all e-mail
traffic.
“America itself has a major stake in our survival,” he said.
In order to raise capital and cut costs, Sidgmore said WorldCom would
continue to exit non-core businesses, highlighting its moves to get out of
the wireless resale business and interest in decreasing its holdings in
South America and Japan, in addition to selling some real estate. On Friday,
the company began laying off 17,000 of its 85,000 employees.
Seeking to calm jitters about Internet interruptions due to the company’s troubles, Sidgmore
said WorldCom’s UUNet unit would have little to no chance of going to black.
“I honestly don’t think, under any of the scenarios under discussion,
there’d by a blip in the level of service,” he said.
While the company has restated its earnings for 15 quarters, it also
disclosed yesterday it would look into potential problems with the use of
reserve accounts in 1999 and 2000. Sidgmore said it was too early to tell if
investigations would reveal more irregularities during those years.
Sidgmore looked to paint a clear line between his tenure, which began two
months ago when longtime
CEO Bernie Ebbers resigned, and previous management, particularly the
role of Chief Financial Officer Scott Sullivan and Controller David Myers.
He said he did not know the extent of Ebbers’ knowledge of the accounting
problems. Ebbers reportedly told his Mississippi church on Sunday that he
did nothing fraudulent.
“We want the bad guys exposed, we want the bad guys punished” Sidgmore said.
“And we want to move forward.”
WorldCom has hired William McLucas, former SEC enforcement chief, to head
its internal inquiry into the scandal and look at the actions of both past
and present management.
Sidgmore said he wasn’t aware the improper use of capital expenditures was a
major problem until June 20. At that point, after hearing Sullivan’s side of
the story in a white paper he prepared for the board, Sullivan was fired.
“It all came together at Scott’s level,” Sidgmore said, responding to
questions about why executives were not aware of the magnitude of the
financial shenanigans.
“If somebody asked me a month ago if this could happen, I’d say zero
possibility,” he added. “We had that much confidence in Scott.”
