worldcom (1).docx

8/14/2019 WorldCom (1).docx

1/8

Company's Profile:

Telecommunication industry was facing an evolution from 1990 till2002.

In 1983started as a small long distance service provider calledLDDS in Mississippi by Murray Waldron, William Fields and Bernard

Ebbers.

1988-1994acquired more than half-dozen communicationcompanies.

Its main service was connecting calls between a callers localtelephone company and the recipients local telephone company.

Worldcom major competitors were AT&T, MCI and Sprint. 1991 and 1993Worldcom merged with MidAmerican

Communication Corporation, Americall, first phone, ATC and other

mergers as well.

19934thlargest company with $1.5 billion revenue. 1994LDDS acquired Worldcom. 1995changed its name to LDDS Worldcom. 1998 Worldcom & MCI announced their $37 billion merger. In September 1998 WorldCom made its most aggressive purchase,

acquiring MCI, using approximately 1.13 billion of its common shares as well

as $7.0 billion cash, for a total price approaching $40.0 billion

In 1999, WorldCom added a new component to its bundle oftelecommunications services, wireless communications, by

purchasing SkyTel Communications, Inc. for $1.8 billion.

1998-20022ndlargest telecommunication providers in the USafter AT&T.

WorldComs annual revenue in 1997 reached $7.4 billion. 2000 MCI Worldcom terminated the merger process and renamed

itself to Worldcom, it was the end for Worldcom to grow through

acquisition because telecommunication industry turned downward.

1988-2002 75 mergers and acquisition of other companies. WorldCom had a four point growth strategy that included:

*internal growth


2/8

o The selective acquisition of smaller long distancecompanies with limited geographic service areas andmarket shares.

o The consolidation of certain third tier long distancecarriers with larger market shares.

o International expansion.With the acquisition of MFS in late 1996 WorldCom enteredimportant new business lines, MFS provided local telephoneservices.WorldComs year over year revenue growth was over 50% in sixteenof the quarters, and the growth rate was less than 20% in onlythree of the quarters. This revenue growth led to a steady growthin demand for WorldCom common stock.

WorldComs stock price grew from $8.17 at the beginning of 1994to $47.91 at the end of September 1999 therefore outperformingthe return of its largest industry competitors, AT&T and Sprint.

After some analysts have expressed concerns about worldcomweakness in wireless technologies; in order to overcome theseconcerns by announcing in oct, 1999 that WorldCom and Sprint hadagreed to merge in a deal valued at $115 billion.

WorldCom would gain Sprint s PCS wireless business, as well aslong distance and local calling operations.

However, the Antitrust Division of the United States Departmentof Justice refused to approve the Sprint merger on termsacceptable to WorldCom and Sprint, and the companies officiallyterminated their discussions on July 13, 2000.

The termination of this merger was a significant event for

WorldCom.Large scale mergers were no longer a viable means of expanding thebusiness. A number of sources pointed out that after this point,Ebbers appeared to lack a strategic sense of direction, and theCompany began drifting.

Conditions in the telecommunications marketplace becameincreasingly difficult in 2000.


3/8

The regional Bell companies were entering the long distancemarket, Competition was extremely vigorous, and a number of thecompetitors were strong.WorldCom s earnings releases highlighted double-digit year-over-

year revenue growth throughout 2000, but the reported growthrates declined by a percentage point each quarter.After thefailure of the Sprint merger

How did it grow?

It grew rapidly through acquisitions and increased demand fortelecommunication services.

Continuous increase in stock values facilitated acquisitions.In July of 2002, Worldcom filled the biggest bankruptcy ever in the US

history with a $41 billion dollar debt load and more than $107 billion in

assets.

Filling chapter 11 bankruptcy due to:

o Fraudo Managerial issues after mergerso Board of director failure

Incentives:

The Compensation Committee dispensed extraordinarily generous rewardswithout adequate attention to the incentives they created, and presidedover enormous loans to Ebbers that we believe were antithetical to

shareholder interests and unjustifiable on any basis.

Directorsreceived compensation consisting of both cash and stockoptions, with overallcompensation heavily weighted toward stock options.Directors received an annual retainer of $35,000 plus $1,000 for eachBoard meeting they attended.

Committee members received $750 for each meeting attended on the

same day as a Board meeting and $1,000 for each meeting attended on aday when a Board meeting did not also occur.


4/8

Committee chairpersons received an additional $3,000 per year.Directors could elect to receive in stock all or a portion of their annualretainer for services as a Director and chairperson of a committee.

Directors also received options to buy shares of Company stock. In 1999,non-employeeDirectors were granted options to purchase 15,000 shares. In 2000 and

2001, non-employee Directors were granted options to purchase 10,000

shares.

Officer Directors were granted options during those years to purchase

amounts ranging from 240,000 to 1.2 million shares.

Because many of WorldComs Directors had held substantial stakes incompanies acquired by WorldCom, they owned a significant amount ofWorldCom stock. At some point between 1999 and 2002, eight of thefifteen Directors each owned over a million shares of WorldCom stock.None owned more than one percent of WorldComs outstanding stock.

The Compensation Committee set the salary and bonus of Ebbers,Sullivan and Roberts.

Ebbers recommendation was of paramount importance in settingexecutive base salaries: for example, it was at his urging that Robertssalary was maintained at $1,050,000 after the MCI merger.

Ebbers was ranked among the highest paid Chief Executive Officers inthe nation several years in a row, and Sullivan was ranked among thehighest paid Chief Financial Officers in new economy businesses.

From 1998 through 2001 Ebbersreceived approximately $1 million peryear in basesalary plus options for well over one million shares of stock per year.For the same time period, Sullivanreceived annual compensation between$600,000 and $700,000 in base salary plus options for 600,000 to900,000 shares of stock per year.

Ebbers and Sullivan also each received a $10 million retention bonus in2000.


5/8

The Compensation Committee administered two bonus programs duringthe relevant period.*The Companys Performance Bonus Plan:which began in 1997, required, that an executive officer achieve a ten

percent increase in revenue for his or her unit over the same time periodthe previous year.This focus on revenuesis noteworthy; it created an incentive to sustaineven unprofitable operationsthat provided revenue and it created great pressure to report doubledigit revenue growth;which may have played a role in motivating the improper entries thatinflated revenuesto that level during portions of 2000 and 2001.

A second bonus program, the Compensation Committee awarded retentionbonuses:in 2000 and 2001, With the decline in WorldComs stock price and thefailed merger withSprint, the Board was concerned about low morale at the Company, so itinstituted a retentionbonus program intended to keep key employees in place. The plan requiredan employee to

commit to staying at WorldCom through July 2002. In 2000,employeeswere awarded upfrontbonuses totaling nearly $238 million cash, plus roughly 10 million options.In addition,Ebbers and Sullivan each received a $10 million retention bonus.

Employees other than Sullivan and Ebbers were given bonuses in a mix of

cash and options, while Sullivan and Ebbers received cash only.

It does not appear that anyone challenged the necessity for suchsubstantial payments under the 2000 program, which were made toprevent people from leaving, particularly in light of the locations ofWorldComs principal operations.

The Compensation Committee was also responsible for administeringWorldComs stockoption plan. It determined the number of options to be awarded to

Ebbers. The Companys

proxy statement indicates that the Committee granted options toexecutive officers based on the


6/8

same subjective factors it considered in awarding base salaries. Althoughnot clear, it appearsfrom meeting minutes that the Committee approved grants to otherWorldCom officers or

employees as recommended by Ebbers.

Characters:

Bernard Ebbers:

Name:Bernard Ebbers Job : Chief Excutive officer at worldcom company Birth: in 1941, Canada Nickname: Bernie Bernard Ebbers was born August 27, 1941 in Edmonton, Canada.

Following a basketball scholarship at Mississippi College, Ebbers rana chain of hotels around the state. In the 1980's, he got involved intelecommunications businesses and co-founded WorldCom in 1995.

QUOTES

I just want you to know you aren't going to church with a crook

Scott Sullivan:
http://www.biography.com/people/groups/famous-named-bernard/http://www.biography.com/people/groups/famous-named-bernard/


7/8

Name:Scott Sullivan Birth:1963, New York He is an American Certified Public Accountant and the former

Chief Financial Officer, Treasurer, and Secretary of WorldCom.

Cynthia Cooper:

She is an American accountant who formerly served as theVice PresidentofInternal Audit atWorldCom.

Cooper's book about her life and the WorldCom fraud, ExtraordinaryCircumstances: The Journey of a Corporate Whistleblower, was publishedin 2008. Profits from the book were given to universities for ethicseducation

Ronald Beaumont:

Name: Ronald Beaumont

Education: Electrical Engineering degrees from Lamar Universityand Stanford University.
http://www.biography.com/people/groups/famous-named-scott/http://www.biography.com/people/groups/born-1963/http://www.biography.com/people/groups/born-in-new-york/http://en.wikipedia.org/wiki/Vice_Presidenthttp://en.wikipedia.org/wiki/Internal_Audithttp://en.wikipedia.org/wiki/WorldComhttp://en.wikipedia.org/wiki/WorldComhttp://en.wikipedia.org/wiki/Internal_Audithttp://en.wikipedia.org/wiki/Vice_Presidenthttp://www.biography.com/people/groups/born-in-new-york/http://www.biography.com/people/groups/born-1963/http://www.biography.com/people/groups/famous-named-scott/


8/8

Job: Chief Operating Officer at WorldCom.

Arthur Andersen:

Worldcom outside auditor.

worldcom (1).docx

Documents