WorldCom restructures, creates tracking stocks

WorldCom restructures, creates tracking stocks

A week after competitor AT&T announced a realignment plan, WorldCom on Wednesday detailed its intention to reorganise in order to fine-tune its operations.

WorldCom will create two publicly-traded tracking stocks. One will measure businesses the company considers high-growth, such as data communications, while the other will reflect the performance of units seen by WorldCom as more mature, such as consumer and long-distance services.

The tracking stock that will monitor the performance of data communications, hosting services, international business, wireless operations and business phone service will be called WorldCom, like the company. The other tracking stock will be called MCI and will cover services aimed at mass markets and small businesses, as well as dial-up Internet access, paging and prepaid card services.

WorldCom CEO Bernie Ebbers said during a teleconference that tracking stocks offered the quickest changeover without any federal regulatory rules and provided the company flexibility for debt allocation. The company has suffered from a perception that it doesn't know where exactly it is heading, and this will allow management to put specific focus on the two business units, Ebbers said. Also, it will help investors to understand the value of each business, according to WorldCom.

The plan calls for WorldCom shareholders to receive one share of MCI stock for every 25 shares of WorldCom common stock held immediately prior to the tracking-stock distribution date, expected to happen during the first half of 2001.

WorldCom also lowered its forecast for its fourth-quarter financial results. It said that revenue growth for WorldCom as a whole in the fourth quarter is expected to be in the 7 to 9 per cent range, compared with last year's fourth quarter. The company expects fourth-quarter revenue growth of approximately 12 to 14 per cent for the WorldCom businesses and essentially a flat growth rate for MCI businesses.

WorldCom expects earnings per share for the quarter to come in at between 34 cents and 37 cents per share, with WorldCom between 27 cents and 30 cents a share and MCI in the area of 7 cents on a pro forma basis. It expects full-year 2001 earnings to be between $US1.55 and $1.65 per share, with WorldCom earnings between $1.25 and $1.35 per share and MCI between 25 cents and 30 cents a share on a pro forma basis.

According to First Call/Thomson Financial, 18 analysts had expected earnings of 49 cents a share for WorldCom for the fourth quarter. Investors responded unfavourably to the WorldCom's news on Wednesday as the company saw its shares shed 20 per cent of their value, or $4.81, closing at $18.93. Trading volume exceeded 195 million shares.

WorldCom attributed the downward projections to competitive pressures in the telecommunications industry, and increased spending to support the company's growth and economic factors.

The failed merger attempt with Sprint earlier this year also may have taken away some of the company's focus on moving forward, but it was the right move for the company, Ebbers said. He acknowledged he was partly to blame for some of the company's recent woes, but said he hopes the company can right the ship and get back to its glory days.

"This is certainly not an enjoyable experience," Ebbers said "I will never say there haven't been mistakes made. I will admit that some of them were mine. I think that any human being would say that it is more fun when things are going well than when we struggle. But I believe from deep parts of me that we can get back to where we were."

The reorganisation and the outlook for the company was not a surprise for one analyst.

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