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Monday, 22 July, 2002, 15:07 GMT 16:07 UK
Bankrupt WorldCom resists breakup
WorldCom headquarters
At its height WorldCom was valued at $175bn
Scandal-hit telecom giant WorldCom will do everything it can to avoid being broken up, despite the fact that his company has now become the biggest business failure in US history.

The firm went into Chapter 11 bankruptcy protection on Monday morning, a process which protects it from its creditors while it tries to restructure.

Chief Executive John Sidgmore
Chief Executive John Sidgmore says the company will keep operating
The firm, which has 85,000 staff in 65 countries, has buckled under the pressure of a massive scandal over a $3.85bn (2.44bn) accounting fraud which made the company look profitable when it was not.

"When the restatement occurred, most people began to feel that Chapter 11 was an eventuality and now, in a strange way, entering Chapter 11 will be stabilising bacause we can communicate our strategy," president and chief executive John Sidgmore told a news conference.

'Business as usual'

WorldCom, which owns a third of the US' high speed data cables and is its second biggest long-distance phone operator, said it intends to keep operating during the reorganisation.

And it expects to stay in bankruptcy proceedings till March 2003 at the earliest.

"We don't really believe our competitors would be smart to relax during this period," Mr Sidgmore told a press conference.

The company insists that it has not lost any substantial customers over the last few months, and that it has lined up about $2bn to keep it going through the restructuring.

And it intends to stay in one piece, Mr Sidgmore said, pointing to Continental Airlines and Texaco as companies which made it out of Chapter 11 whole and healthy.

"We intend to do the same thing," he said. "It doesn't mean we won't get out of some business, but these are all pieces on the fringe of the core.

"I suspect the plan will include keeping the centerpieces intact ... the value in WorldCom is not in switches and pipes and hard assets, it's our 20 million customers, our brands and customer relationships. Breaking it apart is not going to help."

Analysts have their doubts about the shape in which the company might emerge.

No-one knows just how much of the $100bn WorldCom claims in assets will turn out to be worth in real life, said Michael Baxter, a bankruptcy specialist at Washington law firm Covington and Burling.

"It's enormous, it is very complex and it's going to be very messy," he said, with the likelihood being that bondholders end up owning the company and shareholders get nothing.

But it may well have "profitable cores", he said, and the fact that its business is still earning money means it is in better shape than many of its competitors."

Spotlight

Despite the protection from its creditors, WorldCom is still under the microscope of both internal and external investigatorstrying to work out just how the company ended up in the mess it is in now.

Mr Sidgmore said the search by new auditors KPMG - called in before the restatement in June to replace the now-disgraced Arthur Andersen of Enron fame - might not be complete until the end of the year.

The firm is facing a lawsuit from the stockmarket watchdog, the Securities and Exchange Commission.

Alongside its bankruptcy filing, it revealed it was adding more firepower to its board - ex-US Attorney General Nicholas Katzenbach and Dennis Beresford, who used to chair the Financial Accounting Standards Board.

The pair will join a committee to investigate the firm's accounting methods.

Fraudulent times

The revelations over fraud at WorldCom which inflated earnings by $1.2bn followed similar scandals at a string of American companies, including the energy giant Enron, which filed for bankruptcy last year.

WorldCom's bankruptcy is twice the size of Enron's, which was until now America's biggest bankruptcy.

The scandals at WorldCom and other US firms have severely rocked investor confidence in the global financial markets.

"When people see that the big companies are worth little or nothing, it can't help sentiment," said Freddie Tulloch at bookmaking firm Financial Spreads.

Analysts say WorldCom's decision to file for bankruptcy will mean that shares in the company, which have crashed to just a few cents since the scandal broke, are now likely to be worth nothing.

Another concern is whether holders of WorldCom's $30bn in bonds will be able to swap their debt for shares in the restructured firm, usually a key demand under these circumstances.

And banks are also facing exposure to the $41bn of debts that WorldCom has left behind.

 WATCH/LISTEN
 ON THIS STORY
Patrick O'Connell reports from New York
"This was the moment that history was made"
WorldCom in Europe's Lucy Woods
"WorldCom in the States has filed for bankruptcy protection"
Julian Hewitt, Ovum telecoms consultancy
"The control of the company really is now in the hands of the debtors"
WorldCom

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22 Jul 02 | Technology
20 Jul 02 | Business
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