Who is this guy? Few outside the industry have ever heard of Ebbers or his voraciously aggressive company, WorldCom Inc. What’s more, he’s trying to grab MCI away from a far larger suitor: the venerable British Telecommunications, with three times WorldCom’s revenues and profits of $6 billion to its zilch.
This tells us something important: that the stodgy telecommunications industry is ripe for revolution. If the deal goes through, it will turn WorldCom from an also-ran into the second largest long-distance phone carrier in the country, after AT&T. It would become the world’s leading provider of Internet services, the fastest-growing segment of the telecommunications business. But more important, the bid proves that upstarts like WorldCom can (and increasingly will) challenge the global telecom biggies for dominance–BT and AT&T not least among them. It will force a new wave of consolidation in the industry. Riding that wave, little-known Bernie Ebbers could soon become one of the most influential business leaders in America.
A few caveats here: MCI’s board or shareholders could reject the bid. The Justice Department might block the merger. British Telecommunications could make a higher counterbid, triggering a takeover fight. But that’s not likely. WorldCom’s all-stock bid is worth about $9 billion more than BT’s–and is roughly half again as much as MCI’s current share price. The consensus on the Street: this deal’s too good for MCI and its shareholders to refuse.
If so, that will cap a startling run that has propelled Ebbers and WorldCom from nowhere to the top in little more than a decade. Born in 1941 to a working-class family in Edmonton, Alberta, Ebbers began his working life delivering milk. He moved to Mississippi after winning a basketball scholarship to Mississippi College, and he’s lived there ever since. At his farm in Brookhaven, outside Jackson, where WorldCom is headquartered, he raises cattle and does his own chores, hopping a tractor to plow a field or cut the grass. He teaches Sunday school at the Baptist church and credits God with his success.
A private man, Ebbers says he draws a strict line between work and family. His resume is pretty much a blank until 1974, when he bought a motel in Colonel, Miss. Two years later he rounded up some investors and bought another, and then another, and so on until he had a chain of nine motels, named Master Corp. In 1983 he and three friends borrowed $500,000 from the Brookhaven State Bank and bought a small, financially troubled phone company. The partners named it LDDS, for Long Distance Discount Services–the suggestion offered by a waitress at the diner where they happened to be eating.
EBBERS HAS BEEN ON A BUYING spree ever since, snatching up more than 40 companies–each seemingly bigger than the one before. Last year, in another huge deal, he paid $14 billion for MFS Communications and its leading Internet subsidiary, UUNET Technologies. Last month he picked up the Internet and networking divisions of America Online and CompuServe in an elaborate three-way asset swap. Now comes MCI. Not for nothing did the guy name his boat Aqua-sition.
Can Ebbers fit all these pieces together? Some analysts wonder how easily a company with revenues of $4 billion can swallow one four times that large. Others note that WorldCom’s merger-related expenses caused an operating loss last year of $1.8 billion–and ask how much more the company can take on. Not Ebbers. ““Not one red dime is needed’’ to do this deal, he says, emphasizing that his offer for MCI is a pure stock play. He also claims that merging MCI and WorldCom will generate tremendous savings. Slashing overlapping administrative and marketing costs, he estimates, will save $1 billion or more a year. MCI will be spared an additional $800 million in annual expenses by not having to build its own fiber-optic networks in markets already served by WorldCom.
So far, Wall Street generally seems to be bullish on the deal. Both companies’ stock closed higher on the week. ““WorldCom takes a very pragmatic, bottom-line approach,’’ says Robert Bolen, a telecommunications analyst at J.C. Bradford in Nashville. ““If Bernie Ebbers says he cancut costs and increase earnings by 22 percent, then I believe him.’’ Bolen rates WorldCom a strong ““buy’’ and expects its shares to double within two years. So does Richard Klugman at Goldman Sachs. ““This deal positions the company for even faster growth,’’ he says. That says a lot, considering WorldCom has been one of the hottest stocks in America, rising about 50 percent annually for a decade.
What next? MCI and BT issued terse statements last week saying they were studying WorldCom’s offer. MCI’s shareholders are likely to vote sometime in November. Meanwhile, WorldCom prepared for a potentially long legal battle by filing suit against BT and MCI in a Delaware court. Its aim: to deactivate a $450 mil-lion ““breakup fee’’ designed to discourage outsiders like WorldCom from meddling. Asked to rate his chances of prevailing, Ebbers says flatly: ““100 percent.''
The battle, if it materializes, will be a sideshow to larger ones to come. Call them the Telecom Wars, with Ebbers launching an early offensive. His objective: to be the first to create what amounts to a new breed of phone company. With MCI, WorldCom would become the first big company since the breakup of the old AT&T to offer service in both local and long-distance markets. That could give him an edge on such long-distance giants as AT&T and Sprint, as well as the local Bells. How so? Ebbers could go to corporations, the most lucrative market, and sell a package of all-in-one telecommunications services at a discount to its splintered competition.
Further in the future, there’s the Internet. The rise of computer communications–e-mail, fax and data transmission–means that today’s preponderance of ““voice’’ communications will gradually give way in importance to digital communications. With MCI, WorldCom overwhelmingly dominates this new realm–at a time when AT&T and others are barely in the game. They’ll scramble hard to catch up, probably through acquisitions and mergers like WorldCom’s. That will turn the whole industry upside down–and everyone will know who’s responsible. Not bad for a little old country boy from Mississippi.
1941: born in Edmonton, Alberta
1960s: Graduated from Mississippi College with B.A. in phys. Ed.
1974: Buys a motel (his first) in Colonel, Miss.
1983: With three investors, Ebbers founds LDDS, a long-distance phone company in Jackson, Miss.
1985: LDDS board asks Ebbers to become CEO of the debt-ridden company. In six months LDDS is back in the black.
1989: LDDS merges with Advantage Co. and together they provide long-distance service to 11 Southern and Midwestern states.
1993: In a $1.2 billion deal, LDDS merges with Metromedia and the Resurgens Communications Group.
1995: LDDS purchases WilTel Network Services for $1.2 billion. Changes name to WorldCom.
1996: WorldCom pays $14 billion for MFS Communications, acquiring Internet giant UUNET.
1997: After getting the Internet “backbones” of AOL and CompuServe, Ebbers leads WorldCom to bid for MCI.
