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WorldCom names Capellas as chairman, CEO

Jessica Hall in New York

Michael Capellas, recently departed from computer maker Hewlett-Packard Co, on Friday was named chairman and chief executive officer of WorldCom Inc. He will be taking up the challenge to turnaround the bankrupt telecommunications provider as it tries to rid itself of accounting scandals and retain customers.

Capellas, who has no experience in the telecommunication industry, will replace interim CEO John Sidgmore, and chairman Bert Roberts, and will face the daunting task of rescuing the No 2 US long-distance telephone giant and one of the biggest movers of Internet traffic from being torn apart. The company did not elaborate on the future roles, if any, of Roberts and Sidgmore.

Analysts expect Capellas to change the company's name and adopt the MCI long-distance brand name, replace at least five more board members, as well as top officers linked to the old management regime. He also is expected to fix problems that have been left to linger for years, such as the merging disparate billings systems, and cutting non-core assets such as its SkyTel paging unit and wireless spectrum.

Tapping a chief executive from outside the telecommunications industry suggests the company's desire to break with the past, analysts said.

It "suggests to me that they are trying to right the ship with a squeaky clean skipper and then decide whether they want to set sail. I'm not sure that there's any sense of where that's going to take them," Paul Glenchur, analyst at Schwab Capital Markets in Washington, said this week as rumors of Capellas' appointment emerged.

Known for having cleaned up Compaq Computer Corp for its merger with rival Hewlett-Packard last year, Capellas may prepare Clinton, Mississippi-based WorldCom for sale as it reorganises through Chapter 11 bankruptcy, analysts said.

"He has the reputation of fixing it: stabilising and fixing and selling it. He's not a growth oriented guy," said Frank Dzubeck, president of consulting firm Communications Networks Architects.

WorldCom, which filed for the world's biggest bankruptcy in July after revealing its massive accounting problems, has said it aims to emerge intact from bankruptcy in mid-2003.

Balancing bankruptcy process, cleanup and growth

Capellas joins WorldCom at a delicate time as its brand name has become almost a household synonym for corporate malfeasance run amok, and investigations into its accounting scandal, which so far tops $9 billion, fill daily newspapers.

"Capellas doesn't have telecom experience, but maybe that's not a bad thing...perhaps coming in without any preconceived notions is what WorldCom needs since they are dealing not only with bankruptcy, but also repairing damage from the scandal and fraud," said independent telecommunications analyst Jeffrey Kagan.

WorldCom is in the final phase of talks to settle fraud charges by the Securities and Exchange Commission, which would impose a fine on the company and exact promises not to violate securities laws in the future, sources familiar with the situation have said.

Four former WorldCom executives have pleaded guilty to securities fraud and have agreed to cooperate with authorities probing the case. WorldCom's former finance chief, Scott Sullivan, who was fired in June, has resumed talks with federal prosecutors that could lead to a possible guilty plea to fraud charges, the Wall Street Journal reported on Tuesday.

Capellas said he was encouraged by the steps that WorldCom's current management has taken to ensure the improper conduct that occurred in the past will not recur in the future. Terms of his compensation are subject to court approval, which the company said it expects to seek as early as Friday.

The company has hired restructuring experts, and named new board members to fix the problems of the past. But analysts said that more must be done to convince customers not to flee to traditional industry stalwarts like AT&T Corp and to sway Wall Street to trust a company whose shareholders lost $140 billion in value.

Last week, an examiner in the WorldCom case issued a report that said WorldCom took "extraordinary and illegal steps" to manipulate its financial records. The company had a number of "troubling and serious issues ... that related to the culture, internal controls, management, integrity, disclosures and financial statements of the company."

WorldCom also soon will name a permanent corporate controller who would be responsible for overseeing and developing accounting and control policies, WorldCom's Chief Financial Officer John Dubel told creditors and analysts on Thursday.

In September, the company's former controller, David Myers, pleaded guilty to charges of filing false documents with securities regulators and to fraud.

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