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THE WORLDCOM SCANDAL

WorldCom Unit Receives $4-Billion Bid

Telecom: Even at that price, a sale to rival IDT would represent a significant loss. A judge appoints a monitor to preserve records.

June 29, 2002|KAREN KAPLAN | TIMES STAFF WRITER

The vultures began circling WorldCom Inc. on Friday as a rival long-distance carrier offered up to $4 billion for one of the scandal-plagued telecom firm's biggest units.

IDT Corp. of Newark, N.J., wants WorldCom's MFS Communications unit, which provides local phone service to businesses. IDT's chairman and chief executive, Howard Jonas, said he had approached WorldCom's lenders about a possible deal.

A WorldCom spokesman declined to comment.

Even at $4 billion, a sale would represent a significant loss for MCI parent WorldCom, which paid $15.5 billion for MFS in 1996. The unsolicited bid by IDT, which has bought units from other distressed telecommunications companies, could be the first of many from rivals seeking to capitalize on the woes at WorldCom, which is the nation's No. 2 long-distance firm.

"WorldCom needs to entertain any serious offers for its business than it can carve out," said Rick Franklin, an analyst at Banc of America Capital Management, which owned about 424,975 WorldCom shares as of March 31.

IDT closed up 62 cents on Friday to $16.92 on the New York Stock Exchange. Trading in WorldCom stock has been suspended.

Also on Friday, a federal judge in New York said he would appoint a monitor to ensure that WorldCom doesn't destroy financial records or drain its limited financial resources by making exorbitant payments to executives. The company acted to conserve its cash by commencing a round of 17,000 layoffs and seeking more lenient terms for some of its $30-billion debt load.

WorldCom Chief Executive John W. Sidgmore described these and other cost-cutting moves in a letter sent Friday to President Bush. He said he was "surprised and outraged" to find that $3.9 billion of routine business expenses had been classified as long-term capital expenses, an error that hid WorldCom's losses over the last five quarters and prompted a fraud lawsuit from the Securities and Exchange Commission. Arthur Andersen was the company's auditor at the time.

WorldCom disclosed the accounting irregularities Tuesday after they were discovered in an internal audit. Coming on the heels of huge accounting scandals at Enron Corp., Tyco International Ltd. and other firms, the WorldCom admission sent investors fleeing from the stock market as they wondered whether any of the books in corporate America could be trusted.

A WorldCom attorney pledged the company's cooperation with the regulators and law enforcement agencies investigating the scandal. In addition to the SEC investigation, two congressional committees have sent subpoenas to executives, and the U.S. attorney in New York has begun presenting the case to a grand jury, according to media reports.

"The company brought this voluntarily to the SEC itself within days of learning of the shocking events," the attorney, Paul Curnin, told U.S. District Judge Jed Rakoff during a hearing Friday. "We're happy to cooperate with the SEC, the U.S. attorney and Congress."

Rakoff's prohibition against destroying company documents was seen as routine. But his decision to appoint a corporate monitor to oversee payments to executives and other employees was unusual, though not unprecedented.

"It's important here to protect investors, the security markets and WorldCom employees," said Peter Bresnan, deputy chief of the SEC, which asked for the monitor. The SEC and WorldCom will propose three candidates for the position, and Rakoff will select one at a hearing Wednesday.

Next week also could bring a meeting between Sidgmore and IDT's Jonas, whose firm has already bought pieces of Winstar Communications Inc., ICG Communications Inc. and Teligent Inc.

WorldCom has begun an aggressive campaign to cut its annual expenses by $900 million. The first of 17,000 pink slips were handed out Friday, including 100 at the company's headquarters in Clinton, Miss. The biggest cuts were made in Virginia, Texas, Maryland and Colorado. The layoffs will trim WorldCom's work force by 20%.

"We're frustrated and very angry," said Kimberly Spencer, a 31-year-old mother of two who was fired from WorldCom's accounting department. "We worked hard for this company and we get this?"

WorldCom also worked Friday to renegotiate its bank loans so that it would have more time to repay its debts. The company's lenders could demand immediate repayment of those loans in light of the improper accounting.

*

Associated Press, Bloomberg News, Dow Jones and Reuters were used in compiling this report.

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