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Asset Sale Unlikely to Make Difference


WorldCom Inc. plans to sell off nonessential assets to raise cash, but analysts cautioned Monday that there won't be many takers and the prices will be too low to make a dent in the telecommunications firm's massive $41-billion debt.

The company, which filed the nation's largest bankruptcy case Sunday, already had been shopping some of its overseas holdings, including its assets in Japan and its ownership stakes in phone companies in Brazil and Mexico. WorldCom also has said it will sell its wireless services unit.

But most of those assets aren't worth much, and selling additional businesses such as its SkyTel paging unit and its local phone service operations won't bring in much cash either, experts say.

Some observers believe WorldCom may be forced to part with valuable operations, including its UUNet Internet unit, to appease its bankers and creditors.

Last week WorldCom told creditors it would not sell any operations for at least 70 days.

"If WorldCom's management had their way, it would be a mix of ... retaining the UUNet business and the business data services under WorldCom, and everything else would be sold off," said David Willis, a research analyst at Stamford, Conn.-based Meta Group. "It's not clear that the creditors are going to be that patient."

WorldCom's other options include supplementing the proceeds from any asset sales with a cash infusion from new investors, selling off its core businesses and selling the entire company.

The hardest part for WorldCom and its bondholders, banks and creditors will be deciding which route will produce the best deal.

The telecommunications industry is so decimated by debt and collapsing demand that dozens of firms have landed in bankruptcy, dumping equipment, networks and other assets onto the auction block. With each bankruptcy filing and sale, the prices seem to fall more, said Ajay Mehra, a portfolio manager and media and telecom specialist at Columbia Management Group.

"Valuing telecommunications is a fairly slippery slope," Mehra said. "Right now, assets are selling for 10 cents on the dollar."

In the last year, assets were put up for sale by wireless carriers Winstar Communications Inc. and Teligent Inc., by high-speed Internet carriers NorthPoint Communications Group Inc. and Rhythms NetConnections Inc., and by firms ranging from 360 Networks Inc. to Global Crossing Ltd.

Some believe that WorldCom's assets can't be compared to those of any start-up. After all, the company has about 20 million customers and is the nation's second-largest long-distance provider, and its UUNet operation carries about half the nation's e-mail and Internet traffic.

The notion that WorldCom assets are in a different league gained momentum in June, when Newark, N.J.-based IDT Corp. offered a deal worth $5 billion to purchase three parts of WorldCom--its MCI long-distance unit and its two local phone company operations.

IDT, a tiny company compared with WorldCom, said the two telecommunications companies have not had serious discussions about the proposal. But the offer still stands, IDT spokesman Gil Nielsen said.

"We're still interested," Nielsen said. "We're monitoring developments, and we're hopeful that we'll hear from the creditors."

Others believe the IDT offer won't fly. Some analysts say WorldCom in its entirety is worth $14 billion. Pessimists believe it is worth as little as $4 billion, said Cliff Higgerson, a partner at ComVentures, a firm that invests in telecommunications companies.

It's not that WorldCom's best assets aren't valuable but that the firm put up its for-sale sign during the industry's worst downturn. Even the strongest players--the nation's regional local phone companies--don't want to spend precious cash unless they get the best of WorldCom's assets: its business contracts and its customers.

Most European telephone companies are too weighed down with debt to go shopping for acquisitions. Analysts believe the best hope for a buyer might come from Asia, where telecom giants NTT, SingTel and others are comparatively healthy and have the cash and the ambition to make a deal in the United States.

One of the biggest assets that could go on the block is the MCI unit, which sells residential long-distance service, prepaid phone cards and some Internet service.

The upside is that the MCI business has a valuable brand name, generates millions of dollars in cash, can stay profitable with smaller overhead costs and has millions of customers. The downside is that the long-distance business is disappearing fast and competition is steadily eroding MCI's market share.

Mehra, of Columbia Management, believes a fair price for MCI would be double the unit's earnings before taxes, depreciation and amortization, or EBITDA. Valid financials are tough to come by, given the company's admission that its 2001 and 2002 figures are unreliable, but based on MCI's reported 2001 EBITDA, the price might be about $2.8 billion.

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