Chapter One
Bernie Ebbers
â Chosen?
â Chosen?
Whether Bernie Ebbers really believed he was chosen by God, as he once claimed, we will never know. But by the end of the 1990s, he could be forgiven for thinking he had indeed been anointed. He had grown WorldCom into a business worth billions, he had a pretty young wife, and he graced the covers of magazines. Yet within a few years, the company admitted to massive accounting misstatements, 20,000 workers lost their jobs, and shareholders lost about US$180 billion. In the final reckoning, it certainly was a catastrophe of biblical proportions.
Bernard J Ebbers was born in Edmonton, Canada, the second of five children. His father was a travelling salesman and while he was growing up he also lived in California and New Mexico, before returning to Edmonton. He briefly attended the University of Alberta and Calvin College, then took jobs working as a milkman and bouncer, before enrolling at Mississippi College. There he earned a basketball scholarship, and in 1967 he achieved a bachelorâs degree in physical education, with a minor in secondary education. He settled in Mississippi, and a year later he married Linda Pigott. They had three daughters. By the high American educational and standards, it was a very modest start to life.
Ebbersâ first foray into business was operating a chain of hotels in Mississippi, and by 1981 he and some business associates ran nine hotels. It was around this time that the US authorities started de-monopolizing national telephone communications, meaning anyone could rent a communication channel from the likes of AT&T or other big carriers and transmit long-distance calls. One of Ebbersâ hotels obtained the right to rent one of Mississippiâs telephone lines, and it gave Bernie the idea heâd been looking for. One evening, sat talking to friends in the Days Inn coffee shop in Hattiesburg, Mississippi, Ebbers came up with a scheme to buy long-distance communication from Southern Central Bell and then resell it to local enterprises. By 1983, the friends founded Long Distance Discount Service (LDDS). Two years later, Ebbers was chief executive.
It was a genuine entrepreneurial, eureka moment â and Ebbers needs to be given full credit. Great and successful entrepreneurs share this common trait: the vision necessary to build really great and sustainable companies. The big difference is that those who continue to be a success remain focused on what they are good at. Ebbers did not.
To say Ebbers was an outsider when it came to the telecoms industry is something of an understatement. Never happier than when riding a tractor, so he said, Ebbers was always a technophobe, rarely using e-mail and hardly ever sitting down at a computer. Yet here he was about to embark on one of the most dazzling telecoms acquisitions trails the United States and the world had ever seen.
This lack of industry knowledge is surprisingly common in successful entrepreneurs, and there are all manner of examples of people succeeding despite their shortage of industry know-how. British mobile phone billionaire John Caudwell, founder of Phones4u, famously sold second-hand cars before going into the telecoms business.
In 1985 Ebbers became president of LDDS, and the company started buying up small long-distance companies in the south and west of the United States. Deals for Metromedia Communications, Resurgens Communications Group, and IDB Communications Group in 1993 and 1994 put the company into markets in the northeast, California and Europe. Ebbers the dealmaker was in his element. Within 10 years LDDS had acquired more than 60 independent telecoms firms, and in 1995 it changed its name to WorldCom.
The relentless deal making continued. In 1996 WorldCom acquired MFS Communications, a company that lets large businesses connect their voice and data calls to long-distance networks without using the local phone company or paying access charges. It had recently acquired UUNet and its internet capacity. At the time, the US$12.5 billion transaction was one of the largest corporate acquisitions in US history.
The combination of acquisitions allowed Ebbers to control long distance, local service and data communications â and the numbers made for spectacular reading. In 1996, operating income reached US$896.1 million on revenues of US$5.6 billion. The company expected revenues to grow in that year alone by an additional 23 per cent to US$6.9 billion.
Ebbers was shaking up the cosy world of telecoms â but he was not finished yet. Early in the morning on 1 October 1997, the audacious Ebbers picked up the phone in a New York hotel and called Bert Roberts, the chief executive officer of MCI Communications Corp. Roberts hadnât arrived in the office. Ebbers reportedly called back at 8.30 am and told Roberts that WorldCom (with revenues of US$5.6 billion) was making an unsolicited bid for MCI (with revenues of US$18.5 billion). To rub it in, Ebbers later joked with reporters that if Roberts winds up working for him, heâd better be in the office âa little bit earlierâ.
MCI had been in discussion with BT at the time about a possible deal, but Ebbers was not concerned. âAfter we get our deal done with MCI,â said the cocksure Canadian, âwe may acquire BT.â WorldComâs successful acquisition of MCI, offering US$30 billion in stock and the assumption of US$5 billion in debt, was completed in September 1998. The telecoms industry was in shock.
The business community, especially in Mississippi, flocked to praise Ebbers. He was inducted into the Mississippi Business Hall of Fame in May 1995 âbecause of his commitment to developing jobs and resources in Mississippiâs telecommunications industryâ, and the MetroJackson Chamber of Commerce named WorldCom âBusiness of the Yearâ for 1998. He received Mississippi Collegeâs highest honour, the Alumnus of the Year award, and was granted an honorary Doctor of Laws degree. In 1998, Ebbers was granted an honorary doctorate from the Jackson, Mississippi-based Tougaloo College.
Politicians too flocked to praise Ebbers, with even President Bill Clinton once calling him âthe symbol of 21st century Americaâ, adding that Ebbers was âthe embodiment of what I want for the futureâ.
The business media, meanwhile, was almost universally blinded by the numbers. A US$37 billion merger, more than 22 million customers, 75,000 employees â wow! Business Week magazine, on 13 October 1997, featured Ebbers on the front cover and lauded him as the Telecom Cowboy. Little did it know then how close it was to the truth.
Business Week was not the only magazine guilty of building up the cult of Ebbers, although its journalists might think in retrospect that some of their comments were rather rash. âEbbers is now showing industry veterans what the new era in communications is all aboutâ, it puffed in 1997. Forbes, Financial World, Fortune and Inc. magazines all chimed in with celebratory pieces, and Ebbers was presented with a variety of accolades. The award-winning Salon.com compared the rise of Bernie Ebbers âwith the rise of the industrial tycoons of the 19th centuryâ. It said, âEbbers is the servant of his shareholdersâ, adding that âwe live in a far more rational, and arguably more honest, economic worldâ. That is arguable indeed.
All the talk was of WorldCom being a 21st-century telecoms company, and of Ebbers being the âunconventionalâ cowboy, riding to the industryâs rescue. Shareholder return was the key, paying careful attention to share prices. Earnings potential ruled, and it was mentioned how Ebbersâ interests and his shareholdersâ were completely âalignedâ.
While we all know whatâs coming, Ebbersâ insatiable hunger for acquisitions showed no sign of abating: not a bit of it. Next on the agenda was the mother of all deals. In 1999, Ebbers announced that MCI WorldCom would attempt to acquire its rival Sprint Communications for a staggering US$115 billion.
While it is one thing buying up small Mississippi-based telecoms firms, it is on an altogether different plateau when the amount you are offering for a company is more than the entire GDP of countries such as Bulgaria, Ecuador and New Zealand. The project was soon abandoned in the wake of objections by US and EU regulators, but that was just the start of WorldComâs and Ebbersâ woes.
A downturn in the telecom market soon put paid to any other grand acquisition plans â and it rapidly had a devastating impact on WorldCom and, by extension, Ebbers. From a peak in 1999 of US$64.50, by the time Ebbers resigned in 2002, the WorldCom share price had fallen to just US$1.79. For an acquisitions spree built on the value of the stockprice, that was not good.
While much press coverage up to this point had been positive, questioning voices were out there (although these were often scoffed at in other media). The New York Times, for example, said Ebbers surely had to slow down on buying corporations and âlearn to run what he has builtâ. But do deal junkies ever really learn to run what they have built? While history has notable exceptions, such as Sir Martin Sorrell at WPP, Gerald Ronson at Heron International and the late Lord Weinstock at GEC Marconi, there are plenty more who appear only interested in the deal. Many of these gallivanting entrepreneurs never give the impression that they are ever running their businesses or sticking to what they are good at. Perhaps what they are good at is the deal. But many come unstuck as a result.
In April 1999, while Network World magazine called Ebbers one of the â25 most powerful people in networkingâ, it did strike a note of caution that would be eerily prescient. It noted that Ebbers had never completely integrated the acquisitions of MFS, Brooks and UUNET before swallowing MCI, and stated that he would need to turn MCI WorldCom âinto a complete, wrinkle-free packageâ.
At his âpeakâ in early 1999, Ebbers was estimated to be worth US$1.4 billion, putting him at number 174 on the Forbes 400. While he was the classic corporate shopaholic, his personal acquisitions trail is no less impressive. In 1998 he purchased Douglas Lake, which at 500,000 acres is Canadaâs biggest ranch (for US$14 million), a lumber mill in Brookhaven, Mississippi and a livestock farm in Mississippi, and in 1999 he bought Joshua Timberlands, 540,000 acres of lumber land in Mississippi, Tennessee, Louisiana and Alabama for about US$600 million. He also bought a minor league hockey team in Mississippi.
There often appears to be a desire in men, as opposed to women, to leave their DNA footprint on the world. There are similar stories throughout history of important men, the likes of Henry VIII, who have a penchant for building palaces that will clearly outlive their mortal bodies. In business there are similarly grandiose dreams: the purchasing of disparate, unconnected assets and businesses in the vain hope that the legacy will be continued.
For Ebbers, there had been seven major purchases in two years, any one of which would have represented the realization of a life-long dream for a normal person. So why was he driven to such material gluttony? Was it just ego and pure greed? We think not. This is empire building beyond ego, rationale and conscious thought: it has to be driven by something much deeper and more instinctive.
The cowboy moniker was no doubt accurate, and Ebbers sauntered through the corporate headquarters in Jackson, Mississippi, in faded jeans while âchomping on a cigarâ. But there are parallels between his corporate spending sprees and his personal ones â and some of the same failings are there in both. For one, he had a tendency to overpay â not only for telecoms firms at the height of the telecoms boom, but also in terms of his personal purchases. The US$65 million he spent on his British Columbia ranch was said to have been US$15 million too much. The US$14 million he spent to buy Intermarine, along with the US$25 million he then invested, was another questionable investment.
Some of his personal investments were made as a result of friendship and loyalty rather than pure business acumen, something that can be linked in part to his religious faith. It was a big factor in Ebbersâ life, and he is even said to have opened corporate meetings with prayer. A member of the Easthaven Baptist Church in Brookhaven, Mississippi, Ebbers occasionally taught in the Sunday school, as unbelievable as it may sound today. And it is interesting to note that when allegations against him first came out that he addressed the congregation and said, âI just want you to know you arenât going to church with a c...