WorldCom Spells New Approach M-C-I

"No group of investors is going to be willing to fund all those losses," says Rick Tilton, a bankruptcy attorney and financial consultant based in Wall, N.J. Tilton says it is likely that WorldCom's creditors committee is looking to cash out on some assets rather than back the entire unwieldy and unprofitable business. The company's liabilities appear to far outweigh its assets, so creditors might be inclined to sell off some less-favored businesses to focus in the future on solid ones.

Among the units most likely to be on the block are Digex, the Web-hosting and management services arm; Skytel, the paging unit; and quite possibly UUNet, the world's largest Net traffic carrier and backbone of WorldCom's notoriously red-ink soaked data business.

The fact that WorldCom's creditors committee hired merger-and-acquisition experts Houlihan Lokey as its financial adviser suggests to some that a paring down of assets is certainly at hand, says Tilton.

The WorldCom Ax

But some WorldCom insiders dispute that. While Digex might get the ax if a buyer could be found, UUNet isn't likely to depart, says one person close to the situation. "What you will see is a mostly scaled-down version of what we used to have, something that looks a lot like the original MCI," says the person, who asked not to be identified.

WorldCom acquired MCI in 1998 after surprising MCI's would-be suitor, British Telecom. The $37 billion deal was but one in a long series of deals that at the time made WorldCom's founder and former chief Ebbers a widely respected dealmaker. But since WorldCom detailed billions of dollars worth of accounting irregularities this summer, prompting a July Chapter 11 bankruptcy filing, the entire foundation of the classic WorldCom business has come under sharp scrutiny. And with that in mind, it's understandable that any restructured enterprise would have MCI out front, in deed as well as name.

"Our whole plan to convert to equity is based on re-emerging as a sales and marketing company that sells a full complement of technology services," the unnamed insider said. "Anything less than that wouldn't return us to the great company this once was."

Yes, and getting the creditors to believe that will be a huge step in that direction.

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