This morning brings the news that Bernie Ebbers is resigning from the top spot at WorldCom and that he will not even serve on the board of the company he famously patched together from an endless string of mergers. He's just out, period. WCOM has traded up a bit on the news (once above $60, adjusted for a split a couple of years ago, the stock is now at around $2.50). No tears for Bernie, I suppose.
While Ebbers' ouster had come to seem almost inevitable, it's still something of a shock. Far more than Kenneth Lay or Jeffrey Skilling, Ebbers was a bona fide business world celebrity, a character familiar to anyone who read the financial pages even casually. How could it be otherwise? WorldCom emerged from nowhere—well, from Clinton, Miss., but you see what I mean—just a few years ago. Dozens of acquisitions culminated in the stunning purchase of MCI. The key was using the firm's ever-soaring shares as currency. All the acquisitions made the company's numbers grow at a rapid clip, which goosed the stock even more, making even more acquisitions possible. Finally this culminated in a stunning all-stock bid for MCI, which beat out a cash offer from GTE. By 1999 at least some observers were calling the Ebbers empire "The next Ma Bell."
The often-blustery Ebbers, who is 60, didn't see stock as merely an acquisition tool; he was a true believer in the benefits of the chief executive as chief shareholder. As he once put it, "The life of a CEO is performance or out, right? And I'm more than willing to accept that. I am much more a stockholder than an employee. The value of my stock is worth a lot more to me than my job and my salary. I've often told my board I may have to fire myself for the sake of my stock."
Of course, such talk was all theoretical back then, but Ebbers' reputation has fallen a long way since 1999. Partly this was the inevitable result of the mindless hyping of telecom titans. (See this earlier "Moneybox.") But part of it can be chalked up to Ebbers' own behavior. One cloud hovering over WorldCom is an SEC probe focused in part on the firm's decision to sign off on big personal loans for Ebbers, who is now estimated to be on the hook for more than $360 million. Again the key is Ebbers' faith in shares—he essentially doubled-down his own bets on WCOM by taking out big margin loans, which were ultimately backed by the shares he already owned. More than once he's had to rejigger these deals, with his company's help, as the stock fell and fell.
Ebbers always did have one advantage over almost all other MCI WorldCom investors, though, which is that he knows the details of his own financial situation—something he's been vague about with everyone else. "I have assets that are more than sufficient to cover the debt, and those are for sale now," he said in a conference call earlier this year when he owed his company about $340 million. What assets might those be? Have they since been sold?
At this point most investors are probably more concerned about the company he leaves behind. The SEC's other focus is on the details of all those stock-fueled mergers. Management says the company is cash-flow positive and will weather the current storm. ("We have a lot more confidence in the business than … anyone else does, I guess," the new CEO commented on a conference call today.) On the other hand, the firm has more than $28 billion in debt, which may soon be downgraded. The speculation now is whether WorldCom's new honcho will try to engineer some kind of sale or whether the company can even survive.
As amazing as Ebbers' rise was, the real moral of his story now seems to be not about the possibilities of rising from obscurity to join the pantheon of business heroes but about just how fleeting that journey can be. His was a career that certainly lived by the power of stock—and died by it, too.