Following a trend set recently by rival AT&T Corp., WorldCom Inc. last Wednesday announced plans to realign its businesses with the customer bases they serve in an attempt to bolster its sagging stock price, which has fallen from its 52-week high of $61 per share to current levels of around $20 per share.
The realignment will create two separately traded tracking stocks: WorldCom, which will reflect the value of the company’s core data, Internet, hosting, international, wireless, business long-distance voice and business local voice services; and MCI, which will reflect the performance of the company’s mass markets, wholesale services, small business, dial-up Internet service, paging and prepaid card services.
“Realigning WorldCom’s structure in this way will enable the respective businesses to achieve greater management and resource focus to execute business strategies that work most effectively for each,” said Bernard Ebbers, president and chief executive officer of WorldCom. “At the same time, the new structure is designed to create greater shareholder value by providing shareholders with two distinct, clear and compelling investment opportunities, while ensuring a seamless transition for WorldCom customers and employees.”
The company said the realignment, which was approved by WorldCom’s board of directors, will grant current WorldCom stockholders one share of MCI for every 25 shares of WorldCom they own.
The new MCI stock would be traded under the “MCIT” ticker and track the company’s slower-growth divisions that currently generate about $16 billion in annual revenue. The current WorldCom stock, traded under the “WCOM” ticker symbol, would concentrate on the company’s higher-growth divisions that currently generate in excess of $23 billion in annual revenue.
“This plan is a triple-tiered win,” said Ebbers, who would remain president and CEO of the WorldCom business and WorldCom Inc. “For our shareholders, who will gain more targeted investment opportunities. For our customers, who will experience a more efficient operation attuned to their individual needs. And for our employees, who will be enabled to execute targeted business strategies that play to the strengths of each operation.”
WorldCom’s realignment plan came on the same day the company said it was cutting profit and revenue growth projections through 2001, the second time it has done so this year. The company attributed the reduced growth to increased pricing pressure, competition and higher spending to build Web hosting and Internet-based virtual private networks.
“We have let you as investors down,” Ebbers told analysts. “The management team of this company is not at all satisfied with where we are today.”
The company said it expects consolidated fourth-quarter revenues to rise between 7 percent and 9 percent compared with the fourth quarter last year, short of analysts’ expectations of growth between 12 percent and 14 percent in the company’s WorldCom unit. Analysts expected the company’s MCI unit to report flat revenue growth for the quarter.
Through next year, WorldCom said consolidated revenues will grow at between 7 percent and 9 percent, with the WorldCom unit expected to post growth of between 12 percent and 15 percent, and the MCI unit reporting flat to negative growth.
Earnings per share are also expected to miss analysts’ predictions, with WorldCom expecting fourth-quarter results of 34 cents to 37 cents compared with analysts’ estimates of 58 cents per share. Next year’s results are expected to miss analysts’ predictions of $2.40 per share, with WorldCom predicting earnings of between $1.55 and $1.65 per share.
WorldCom’s stock did not take the news well, falling more than 20 percent on Wednesday to $18.94 per share, with more than 194 million shares trading hands, well above the usual 33-million-share level. The close was just off the stock’s daily low of $18.31 per share and was its lowest close in more than a year.
