WorldCom Inc. announced major structural changes in the company earlier this month that involve creating two tracking stocks that would represent the two sectors of the company’s business.
Instead of laying out plans to break up the corporation into four separate companies, as AT&T Corp. did last week, WorldCom officials said its board of directors had elected to retain the company name and to create two tracking stocks – one for its big business services and another for services to smaller businesses and consumers.
The Clinton, Miss.-based company also announced its performance expectations for the fourth quarter of 2000 and for 2001.
Upon shareholder and regulatory approval, one tracking stock, WorldCom, would reflect the performance of the company’s data and Internet-related business and would also track local and long-distance voice services sold to businesses.
The other tracking stock, MCI WorldCom, would represent performance of WorldCom’s small business and consumer services, including wholesale long-distance voice and Internet dial-up.
The restructuring is designed to take into account the fact that the business data and consumer markets have different characteristics, and to maximize the valuation of each business on Wall Street. The data and business services are a high-growth area for WorldCom, while the consumer services are slower-growing but still very lucrative. By separating them as individual tracking stocks, WorldCom hopes to avoid the situation where the performance of one business inhibits the other.
Bernard Ebbers, WorldCom president and CEO said, “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.”
WorldCom officials confirmed that Ebbers would remain the corporation’s president and CEO and that Scott Sullivan will continue in his position as chief financial officer. However, they said, a new management structure would be named in a few weeks for operations tracked by the MCI stock and that the group would report to Ebbers.
Under the arrangement, shareholders of WorldCom would get one share of MCI stock for every 25 shares of WorldCom common stock, the company said. WorldCom officials said this procedure would apply to shareholders who held WorldCom stock prior to the yet-to-be-determined distribution date of the tracking stock.
The performance expectations issued by WorldCom reflect the different growth expectations for each of the new businesses. While the company is predicting fourth-quarter 2000 growth of approximately 10 per cent to 14 per cent for its WorldCom arm, it said in a statement that growth will be “essentially flat” for MCI. For 2001, the difference is even more marked: growth of 12 per cent to 15 per cent for WorldCom, compared with flat to negative-2 per cent growth for MCI.
Maximizing the valuation of the company was also given as the reason for the restructuring revealed by rival AT&T last week. Under that plan, by 2002, AT&T Wireless and AT&T Broadband, representing the company’s wireless interests and its cable television interests (including the Excite@Home Internet access service), respectively, will trade as independent common stocks. AT&T Consumer, which includes the residential long-distance and WorldNet businesses, will be represented by a tracking stock, leaving the company’s business services, AT&T Business, as its principal unit.
Although the extent of WorldCom’s restructuring wasn’t revealed until this week, Ebbers has long made it clear that he views the business data services as the core of the company’s operations. In April, he declared that the “MCI” portion of the company’s original “MCI WorldCom” name was to be dropped, and that it should only be used for the company’s residential long-distance service.
