Extreme Makeover

How Robert Blakely and an army of accountants turned fraud-ridden WorldCom into squeaky-clean MCI.

MCI isn’t ruling out a sale. But Blakely, who admits that the industry is in rough shape, thinks that the company can stand on its own. He is quick to point out that it generates $300 million in positive cash flow each quarter. A large portion of Internet traffic flows over MCI’s network, and the company still has more than 20 million customers. Blakely says MCI will be profitable in the second half of this year.

Focusing on the future is a luxury MCI hasn’t had for a long time. At a recent board meeting, Dennis Beresford noticed something he calls “astonishing”: “The conversation was almost entirely about the operations of the business.” That hadn’t happened since he was elected to the board in July 2002, he says. “Just to be able to sit around and talk about strategy is wonderful.”

Joseph McCafferty is news editor of CFO.

Fall and Rise

1985: Bernard Ebbers becomes CEO of long-distance provider Long Distance Discount Service (LDDS).

1995: LDDS acquires telecom provider Williams Telecom Group (WilTel) for $2.5 billion and changes its name to WorldCom.

1998: WorldCom’s $40 billion acquisition of MCI is the largest merger in corporate history at the time.

1999-2000: WorldCom and Sprint, the nation’s third-largest long-distance company, agree to merge. The deal is later blocked by antitrust regulators and abandoned.

March 2002: WorldCom receives a request for information from the Securities and Exchange Commission on accounting procedures and loans to officers.

April 2002: WorldCom CEO Ebbers resigns as the SEC probe intensifies. Vice chairman John Sidgmore takes over.

June 2002: CFO Scott Sullivan is fired. The SEC formally charges the company with fraud.

July 2002: WorldCom files for Chapter 11 bankruptcy, the largest ever filed in terms of outstanding debt. Former Salomon Smith Barney analyst Jack Grubman admits to attending WorldCom board meetings.

August 2002: Sullivan and former controller David Myers are arrested and charged with securities fraud.

November 2002: Former Compaq chief Michael Capellas is named CEO of WorldCom.

April 2003: 90% of creditors agree to WorldCom’s reorganization plan. Robert Blakely is named CFO.

May 2003: WorldCom settles charges with the SEC and agrees to pay $750 million in fines and retribution.

October 2003: Bankruptcy court judge Arthur Gonzalez approves WorldCom’s reorganization plan.

March 2004: Sullivan pleads guilty to criminal charges. Ebbers is formally charged with fraud. WorldCom files its restated 2002 10-K, which includes a write-down of $80 billion in goodwill, assets, and property.

April 2004: WorldCom exits bankruptcy and changes its name to MCI.


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