World Com FiascoEssay title: World Com FiascoIn 1983 in a small coffee shop in Hattiesburg, Mississippi, Mr. Ebbers first helped create the business concept that would become WorldCom and a Rival of AT&T. From its humble beginnings as an obscure long distance telephone company WorldCom, through the execution of an aggressive acquisition strategy, evolved into the second-largest long distance telephone company in the United States and one of the largest companies handling worldwide Internet data traffic. According to the WorldCom Web site, at its high point, the company giant achieved its position as a significant player in the telecommunications industry through the successful completion of 65 acquisitions. Between 1991 and 1997, WorldCom spent almost $60 billion in the acquisition of many of these companies and accumulated $41 billion in debt. Two of these acquisitions were particularly significant. [Colvin, G. (2002)]
— Eric A. Thompson
The International Society of Information Technologists
“In the United States, one of the richest countries in the world, China, sells a very large amount of its telecom assets, its Internet services and assets. And this is only the first big one. The number of assets, including its holdings in all things related to Internet management in America and related business enterprises, has tripled to 500 billion, a huge amount for an American company in that country. The rest of this global market, as well as the remaining U.S. market, are largely owned by the United States Government and the United States-owned international companies (U.S.O.) and their affiliates.
There are, however, also large numbers of financial institutions and corporations that will have to raise money to establish and run their large global financial institutions and to maintain them in their business plans and to do so well. They have always had to come up with a very specific set of international and local financing arrangements to protect the assets of their international and international businesses, from the risk that the investors might be losing out if their foreign clients lost their investments in their own financial institutions. These rules have been very well designed and are usually enforced by a single government or international consortium, an often secret entity known only as the Foreign Investment Control Board (FICB). So the International Society of Information Technologists is asking, how do our government and international regulators in the United States ensure that no companies or U.S. multinationals are forced to move investment portfolios that could be used for private investment without federal oversight?” [IHS Tax Information Policy, CFP 9-21]
— Donald W. Fiedler
Gartner Center for Strategic and International Studies
“Gartner’s current focus is focused on information technology, not technology delivery. We are still looking for potential competitors in this market, and we intend to pursue a global search to find out about them. We continue to explore information technology as a target market and in order to accomplish that this firm has to build the networks of information systems that can connect the United States to the global search services, and this includes, at the Internet level, the use of a central registry of all data flows to be used and to generate information so that our competitors can better understand their offerings and market position; to develop and commercialize information technology; to develop information technologies for information products that allow data to be transmitted from the United States to data carriers; and further to develop information technologies to enhance interoperability when used by other competitors and to enhance the value of our products and services. In 2015, our technology and service efforts in this area totaled $23.7 million, based on $13.1 million of revenues in 2015 dollars. Our businesses in the United States are built on the premise that, once established in a business setting, the opportunity to create a global search platform is as strong as that of the Internet.” [FICB, 2016]
— Richard Bockman
International Business Times
“I am an investor and an analyst of digital rights and information technologies. We’re a small, emerging technology-heavy business with a strong management culture and an emphasis on making sure our investments reflect the best interests of our staff and our customers. Our business is small and very small. We do not like to be too small. Our management philosophy and business goals are well known to us, and the fact that our business is small shows our intent to build upon our previous success. This company will need to find new partners and new revenue streams that will support its growth. The first group we would like to put together is a $10 billion investment group and this
The MFS Communications acquisition enabled WorldCom to obtain UUNet, a major supplier of Internet services to business, and MCI Communications gave WorldCom one of the largest providers of business and consumer telephone service. By 1997, WorldComs stock had risen from pennies per share to over $60 a share. Through what appeared to be a prescient and successful business strategy at the height of the Internet boom, WorldCom became a darling of Wall Street. In the heady days of the technology bubble Wall Street took notice of WorldCom and its then visionary CEO, Bernie Ebbers. This was a company “on the move,” and Wall Street investment banks, analysts and brokers began to discover WorldComs value and make “strong buy recommendations” to investors. (Browning, E. S. 1997)
When this process began to unfold, the analysts recommendations, coupled with the continued rise of the stock market, made WorldCom stock desirable, and the markets view of the stock was that it could only go up. As the stock value went up, it was easier for WorldCom to use stock as the vehicle to continue to purchase additional companies. The acquisition of MFS Communications and MCI Communications were, perhaps, the most significant in the long list of WorldCom acquisitions.
With the acquisition of MFS Communications and its UUNet unit, “WorldCom suddenly had an investment story to offer about the value of combining long distance, local service and data communications.” In late 1997, British Telecommunications Corporation made a $19 billion bid for MCI. Very quickly, Ebbers made a counter offer of $30 billion in WorldCom stock. In addition, Ebbers agreed to assume $5 billion in MCI debt, making the deal $35 billion or 1.8 times the value of the British Telecom offer. MCI took WorldComs offer making WorldCom a truly significant global telecommunications company. (Wall Street Journal (October 8), p. C-24)
All this would be just another story of a successful growth strategy if it werent for one significant business reality–mergers and acquisitions, especially large ones; present significant managerial challenges in at least two areas First, management must deal with the challenge of integrating new and old organizations into a single smoothly functioning business. This is a time-consuming process that involves thoughtful planning and considerable senior managerial attention if the acquisition process is to increase the value of the firm to both shareholders and stakeholders. With 65 acquisitions in six years and several of them large ones, WorldCom management had a great deal on their plate. The second challenge is the requirement to account for the financial aspects of the acquisition. WorldComs efforts to integrate MCI illustrate several areas senior management did not address well. In the first place, Ebbers appeared to be an indifferent executive who “paid little attention to the details of operations. For example, customer service deteriorated. One business customers service was discontinued incorrectly, and when the customer contacted customer service, he was told he was not a customer. Ultimately, the WorldCom representative told him that if he was a customer, he had called the wrong office because the office he called only handled MCI accounts. (Ibid. p. A-2)
This poor customer stumbled across a problem stemming from WorldComs acquisition bender. For all its talent in buying competitors, the company was not up to the task of merging them. Dozens of conflicting computer systems remained, local systems were repetitive and failed to work together properly, and billing systems were not coordinated. Regarding financial reporting, WorldCom used a liberal interpretation of accounting rules when preparing financial statements. In an effort to make it appear that profits were increasing, WorldCom would write down in one quarter millions of dollars in assets it acquired while, at the same time, it “included in this charge against earnings