Are they ever. Just ask MCI. In a bid that would mark the biggest corporate buyout in U.S. history, the country boy from Canada by way of Mississippi last week offered $30 billion in WorldCom stock for MCI, the country's second largest long-distance carrier and a company four times the size of WorldCom. The bid demolished British Telecommunication's $18.7 billion offer for MCI just as the two phone giants were preparing to seal their transatlantic deal. It also shattered BT's plan to make the MCI merger the focus of its global strategy, a consequence that didn't much concern Ebbers. "We can realize far greater savings and synergies than BT can," he said, and punctuated the analysis with the plainspoken observation that "they just don't live here."
Ebbers, 56, is a born dealmaker whose buccaneering presence has begun to tower over the telecommunications world. His success stems from his recognition that a global-communications industry was forming, which seems like a blinding glimpse of the obvious. But he realized that the winners would be the companies that could mass enough capacity to serve the exploding growth of data and Internet traffic on a local, long-distance and international basis. So he got to massing.
Just last month he agreed to pay $1.2 billion for the CompuServe online service, keeping CompuServe's Internet hookups and swapping its consumer subscribers for the hookups of America Online. That gave WorldCom, which has made some 50 acquisitions in little more than a decade, a broader range of telecom assets--from local and long-distance lines to high-speed Internet-access networks--than even mighty AT&T. Adding MCI would balloon WorldCom's revenues from $4.5 billion in 1996 to nearly $28 billion and make the company, based in Jackson, Miss., by far the leading challenger to the $52.7 billion colossus once known as Ma Bell. "With all of his transactions," says Berge Ayvazian, executive vice president of the Yankee Group consulting firm, "Ebbers has basically pushed WorldCom to the top."
The 6-ft. 4-in. Ebbers has traveled a circuitous route to become the telecom industry's Southern-fried Paul Bunyan. After graduating from high school in Edmonton, Alta., Ebbers started out as a milkman but soon found that "delivering milk day to day in 30-below-zero weather isn't a real interesting thing to do with the rest of your life." A warmer clime beckoned in the form of Mississippi College, a Southern Baptist school in Clinton, Miss., where the Canadian won, of all things, a basketball scholarship and mostly rode the bench before graduating in 1967 with a bachelor's degree in physical education.
The school was a turning point in Ebbers' spiritual development. He noted in the school's alumni magazine last year, "I came to have a fuller understanding of what my purpose was in life, what a personal relationship with Jesus Christ really meant, and how I would try to live my life from that point on."
Ebbers likes to give the impression that he is about as smart as a fence post. Around the office, his style is faded jeans, cowboy boots and turquoise jewelry. "Our personality is to be very loose. We aren't stuffed- shirt people," he says. His colleagues know him better. "Don't fall for that 'Aw shucks' stuff," says John Sidgmore, WorldCom's cerebral vice chairman and the architect of its strategy for dominating access to the Internet. "Bernie's extremely street smart. Most of all, he has a vision for the company. He's extremely aggressive and simply wants to build the biggest company in the industry."
You'd never guess that from his career path. Within a year after graduation, Ebbers chucked a job as a high school basketball coach to manage a garment warehouse. In 1974 he borrowed money from co-workers to buy a motel-restaurant in Colonel, Miss., and went on to own nine Best Westerns. Not good enough. "You don't get much cash flow in the hotel business," Ebbers later told Investors Business Daily. "My family was tired of going to the store with a financial statement instead of money." His family is the only thing Ebbers won't talk about; he refuses even to say how many children he has.
By 1983 Ebbers was ripe for the kind of transformation that business legends are made of. In a Days Inn diner in Hattiesburg, Miss., goes WorldCom lore, Ebbers and some partners scratched out on a napkin a plan for a phone company that would resell WATS long-distance service to local businesses. The name for the company--Long Distance Discount Services--supposedly came from a helpful waitress. "The only experience Bernie had operating a long-distance carrier was that he used the phone," recalls an investor in the original enterprise, which changed its name to WorldCom in 1995.
Ebbers took charge of the faltering business two years later. Then, as now, he saw acquisitions as the fast-track growth alternative to banging away against the giants for one account at a time. His strategy was to string together local carriers that sold long distance to business users, cutting overhead and paying for the acquisitions with his company's stock. His plan worked so well that anyone who invested $100 in WorldCom stock when the company went public in 1989 would today have a holding worth more than $3,000--by far the best showing in the telecom industry and one of the biggest advances for any U.S. company. His 1.8% stake in WorldCom is worth some $600 million.
WorldCom's muscular stock has become Ebbers' checkbook. He paid $2.5 billion in 1995 for a company called WilTel and its 11,000-mile network of fiber-optic cable, making WorldCom the fourth largest U.S. long-distance carrier. But he soon found himself tossing and turning at night because he had little in the way of local service to sell. So while driving to work on Aug. 12, 1996, he dialed up James Crowe, chairman of a local-service provider called MFS Communications, to propose a deal. By the time Ebbers hung up, he was ready to shell out $12.5 billion for MFS, which was itself acquiring UUNet, the world's largest source of trunk lines--or "backbones"--to the Internet.
The MFS deal not only altered WorldCom's destiny but also brought a new superstar to its managerial ranks in Sidgmore, the technovisionary behind UUNet. He joined Ebbers and chief financial officer Scott Sullivan in a troika that has fashioned WorldCom into the very model of a 21st century telecom empire. Ebbers "sees the industry at a historic turning point," Sidgmore says. "That's why WorldCom is moving so quickly. "We've made big bets and moved faster than anybody else." Indeed, even as Ebbers was bidding for MCI last week, WorldCom was unveiling a $2.9 billion buyout of Brooks Fiber Properties, which provides local phone service to business customers in more than 30 U.S. cities.
The company won't have to put up a single penny to buy MCI. Instead, it will issue 820 million new shares and exchange them for MCI's. Investors normally head for the exit in the face of this kind of dilution. But WorldCom's share increased 10% last Thursday and finished trading at $37.95 a share on Friday, up $1.63 for the week. "The more we looked at the numbers, the more we were shocked at how positive [an MCI deal] was," says Sidgmore. Among other advantages, a merger would give WorldCom control of an estimated 60% of all U.S. lines to the Internet, ensuring that it would have the capacity to carry the volume of data--from E-mail to video clips--that Sidgmore sees as the key to growth in the telecommunications industry. Sidgmore and Ebbers spotted their chance last summer when a rift developed between MCI and BT over the price of their carefully negotiated merger because MCI's share price kept falling. Opportunity knocked the moment BT demanded a $5 billion discount off the price it had agreed to pay for MCI, which said in July that it would lose $800 million trying to break into the local-phone market in 1997 and could have even larger losses next year. The cut angered MCI shareholders, who are now likely to jump at WorldCom's 66% higher offer. Ebbers figures he can afford that premium through economies of scale. He notes that 60% of WorldCom's cost is in the calls it handles. By carrying more traffic--MCI's--the cost ratio falls. He predicts that WorldCom could cut more than $2.5 billion a year in combined costs.
Not that the MCI acquisition is by any means a done deal. MCI management, led by chairman Bert Roberts, had not been heard from as of the end of last week. MCI shareholders will get a chance to vote on the rival offers, and BT could choose to raise its bid, although it can ill afford a bidding war. BT, whose shareholders were unhappy with the MCI deal, may simply decide to walk away. That would leave the company's global strategy adrift but provide a nice $1.3 billion profit on its MCI investment. "The player who benefits most from WorldCom's bid is BT," says Gary Stibel, founder of the New England Consulting Group, whose clients have included local and long-distance phone companies. Stibel calls MCI a questionable acquisition because its share of the $70 billion long-distance market peaked at some 15% in 1996 and is sliding below 14% this year.
Such worries seemed far off in the euphoria of last week. Across the road from Mississippi College, WorldCom is constructing a five-building, Microsoft-like corporate campus from which it will direct its global telecom conquests. Indeed, Ebbers wants nothing less than for WorldCom to become "the Microsoft of long distance," says Jeffrey Kagan of Kagan Telecom Associates in Marietta, Ga. "Bernie probably gets up in the morning and sees in the mirror Bill Gates staring back at him," Kagan says.
Whether that's true or not, WorldCom will have the size and scale to challenge anyone in the telephone industry. And that includes AT&T and the Baby Bells. When they look into their rearview mirrors, Bernie Ebbers will be looming large.