Not many options for WorldCom investors
If local investors didn’t have enough to be concerned about asWorldCom struggled with the forced resignation of Bernie Ebbers inApril, Wednesday’s headlines brought out the worst fears of acommunity deeply tied to the struggling telecommunicationsgiant.
Stockholders do have a few options, according to localinvestment professionals. But, those options are limited and nonewill bring back the luster or wealth many enjoyed during the gloryyears of the company whose roots are so deep here in LincolnCounty.
According to John Lynch, branch manager of the Raymond JamesFinancial Services office in Brookhaven, and retired stockbrokerDon Driskell, the options for stockholders are limited to sellingthe stock, waiting to see what actions the company takes and filinga lawsuit against WorldCom.
Although trading on the stock was halted Wednesday morning,selling is an option once trading is resumed. “There is still somevalue in the stock for shareholders; however, the amount of thatvalue will be determined as this shakes out,” Driskell said.
While bankruptcy is an option, so is a buyout of WorldCom byanother company, said Driskell. “A buyout of the stock would meanthat the buyer is buying assets and the stockholders would be leftout,” said Lynch. In either case, stockholder equity would likelybe wiped out or at best diluted.
In a Chapter 11 bankruptcy, said Driskell, it is possible thecompany could reorganize itself and in doing so, issue a newdiluted stock to shareholders. However, in a Chapter 7 bankruptcy,all assets would be sold to pay off creditors and all stockholderequity would be lost.
Both investment professionals agreed that while the future looksbleak, the basis of the company is good and it is possible thatWorldCom could avoid bankruptcy.
“It is possible the major banks could step up to the plate ifthey feel there are enough assets to cover the necessary loans,”Lynch said. He further explained that by doing so, the banks wouldput themselves at the front of the creditor line to coverthemselves should the company eventually fail.
WorldCom is being accused of fraudulent bookkeeping practices bynot properly reporting operating expenses. In doing so, $3.8billion in expenses were categorized as capital or investmentexpenses that made it appear that the company was making more moneythan it actually was making.
Lynch questioned if the cries of fraud were maybe premature.
“WorldCom has installed miles of fiber optic cable with tons ofbandwidth capacity. Since only half of that capacity is being used,then is it improper to expense only the portion being used andcapitalize the rest until it begins being used?” he said. “Is it avalid way of accounting? Only time will tell.”
Driskell says he is still positive about the company and stillholds some stock.
“Here in Brookhaven, a lot of people have a small value in thestock because they bought so early and have enjoyed the benefits ofstock splits,” he said. “They have lost a lot of paper value butthe real (money) loss is not as high.”
Both agreed that it will take time to shake things out, and inthe meantime stockholders will have to either sell or wait theprocess out.