WorldCom investor hires Giuliani firm

Michael Capellas (left) replaced John Sidgmore as CEO

By David Schepp BBC News Online North America business reporter

Former New York Mayor Rudolph Giuliani has acknowledged his firm is working with a group of investors to raise money to buy up to $1.3bn (£820m) in WorldCom bonds, according to reports.

Rudy Giuliani's number-one asset is his personal credibility

Jonathan Bernstein, author/consultant

The investors, headed by David Matlin and backed by Credit Suisse First Boston, have already accumulated $300m in bonds, about 10% of the bankrupt firm's debt.

"This is an opportunity to make a positive contribution to WorldCom, its employees and customers," Mr Giuliani's firm, Giuliani Partners, said in a statement on Monday.

"In particular, we would work to establish a model form of corporate governance that the company could use when it emerges from bankruptcy."

Challenge to Capellas

Mr Matlin, who recruited Mr Giuliani in August, is reportedly pushing to have the former mayor installed as chairman at the ailing telecoms firm.

The move is seen by some to be a direct challenge to the leadership of Michael Capellas, who took over the reins of WorldCom on Friday.

Mr Giuliani was widely praised after the attacks

Mr Capellas, the founder of Compaq Computer, was named WorldCom's president, chief executive and chairman.

Some from Matlin's camp believe Mr Capellas is not the right person to lead WorldCom out of its troubles.

'Bold strategy'

Mr Matlin hopes Mr Giuliani's considerable credibility will give the firm extra time to muster a turnaround, says Jonathan Bernstein, publisher, "Crisis Manager", an electronic newsletter on crisis-management public relations.

"Rudy Giuliani's number-one asset is his personal credibility, based on the brilliant job he did communicating post-9/11 [11 September]," Mr Bernstein told BBC News Online.

"His involvement with WorldCom, in any capacity, will help to offset the lack of credibility resulting from the company's past actions."

If he takes the position, Mr Giuliani faces considerable risks to his own reputation if a successful turnaround fails to materialise.

Still, Mr Bernstein describes the proposition as a "bold strategy" and "one that could work if the turnaround experts also do their part".

Highly esteemed

Mr Giuliani has been highly sought since his departure from City Hall in January.

After leaving the mayor's office he established Giuliani Partners, a consulting firm that advises companies on risk management.

Mr Capellas may have to fight for the firm's control

Mr Giuliani was widely praised for his calm handling of the city immediately following the 11 September attacks in Manhattan that felled the Twin Trade towers, killing nearly 3,000 people.

In March, he received an honorary knighthood from Queen Elizabeth for the role he played in the wake of the attacks.

Most recently, his name was among those being floated for the chairmanship of the Securities and Exchange Commission (SEC), from which embattled chief Harvey Pitt resigned on 5 November.

Calls to WorldCom and a spokesman for Mr Giuliani were not returned in time for this report.

Billions in fraud

For his part, Mr Capellas told the Wall Street Journal newspaper he hopes to work closely with Mr Matlin and Mr Giuliani, who could quickly gain a seat on WorldCom's board of directors.

WorldCom founder Bernie Ebbers resigned in April

"We are going to see if there is a role for Giuliani," Mr Capellas told the Journal.

"We are moving forward and assembling a world-class board," he said.

The US' number two long-distance provider, WorldCom filed for bankruptcy in July after disclosing fraudulent accounting boosted its reported profits.

The firm estimates the accounting mess resulted in overstatement of profits in excess of $9bn.

Its founder and former chief executive Bernard Ebbers resigned at the end of April prior to the fraud being uncovered, in part because of his $408m in loans from the company.

Last week, it was reported Mr Ebbers may relinquish some or all of his $1.5m annual pension to help settle the loan.