Plan Will Provide Greater Focus for Shareholders and Business Units
CLINTON, Miss., November 1, 2000 - WorldCom, Inc. (NASDAQ: WCOM) today
announced a realignment of its businesses with the distinct customer bases they serve.
While WorldCom, Inc. will remain the name of the Company it will create two separately
traded tracking stocks: WorldCom (NASDAQ: WCOM), which will reflect the
performance of the Company's core high-growth data, Internet, hosting and international
businesses, and MCI (NASDAQ: MCIT), which will reflect the performance of its high-
cash flow consumer, small business, wholesale long-distance voice and dial-up Internet
access operations.
Under the plan, which has been approved by its Board of Directors, the Company will
make a tax-free distribution to its shareholders of a 100 percent interest in MCI, which is
expected to be completed during the first half of 2001.
"Realigning WorldCom's structure in this way will enable the respective businesses to
achieve greater management and resource focus to execute business strategies that work
most effectively for each," said Bernard J. Ebbers, WorldCom president and chief
executive officer. "At the same time, the new structure is designed to create greater
shareholder value by providing shareholders with two distinct, clear and compelling
investment opportunities, while ensuring a seamless transition for WorldCom customers
and employees."
WorldCom stock will provide investors with a high-growth investment opportunity that
will track the primary growth drivers of the Company - data, Internet and international
services. Together, these growth businesses represented $4.1 billion of revenue during the
three-month period ended September 30, 2000, providing all of the Company's $1.1
billion incremental revenues during the period.
MCI stock will track the Company's high-cash flow consumer, small business and
wholesale long-distance voice businesses, as well as dial-up Internet access services. MCI
stock will pay a cash dividend.
"This plan is a triple-tiered win," said Ebbers. "For our shareholders, who will gain more
targeted investment opportunities. For our customers, who will experience a more
efficient operation attuned to their individual needs. And for our employees, who will be
enabled to execute targeted business strategies that play to the strengths of each
operation."
WORLDCOM
The WorldCom tracking stock will reflect the performance of the following businesses:
- Data
- Internet
- Hosting
- International
- Wireless
- Business Long-Distance Voice
- Business Local Voice
WorldCom has the industry's most extensive, state-of-the-art global facilities-based
communications networks, providing unmatched reach and scale in the marketplace. With
its networks, focused sales efforts and prudent capital investments, WorldCom has
annualized revenues of $23 billion. Of that, data, Internet and international operations
represent a $16 billion annualized high-growth revenue stream. In addition, WorldCom
has high levels of operating cash flow to fund its aggressive growth initiatives.
The international business consists of revenue streams generated outside of the U.S., with
annualized revenues exceeding $6 billion, operations in more than 65 countries and local
networks in more than 20 cities across Europe, Latin America and Asia-Pacific.
Additionally, business voice represents annualized revenues of $7 billion from a full range
of enterprises.
By leveraging its strengths, WorldCom intends to continue to expand its market
leadership in data, Internet and international services - the growth drivers of the industry
today - while continuing to move quickly to capture significant market share in global
Internet Protocol-Virtual Private Networks (IP-VPNs), hosting and other growth engines
of tomorrow.
Taking advantage of its network and management strengths, WorldCom will market a full
complement of e-business-enabling communications services for enterprises worldwide.
WorldCom plans to expand its current global Internet and high-speed data networks
further into Europe and Asia-Pacific to provide business customers in these rapidly
growing regions the reliability, performance and scale they need as their operations and
communications needs expand.
From its global leadership position in IP infrastructure, WorldCom will continue its
expansion into next generation "edge" services, such as IP-VPNs, advanced hosting and
content delivery. The IP-VPN market, which is currently in its initial growth phase, is
expected to grow to more than $7 billion by 2005. This digital technology simplifies
operations by allowing data to reach more locations through expansion of a data
network's reach via the Internet, without sacrificing the security and reliability of private
networks. Leveraging its industry-leading IP and data network platforms, network
services experience and corporate enterprise relationships, WorldCom is well positioned
to tap into these significant growth opportunities.
Managed hosting, an area projected in the U.S. alone to reach more than $19 billion by
2004, is an emerging business that provides data centers and application operations,
allowing customers to outsource their increasingly essential web-based e-business
operations. WorldCom will expand its presence in the highly fragmented hosting market
with the addition of a controlling interest in Digex, a leading managed hosting provider,
through its proposed acquisition of Intermedia.
MCI
The MCI tracking stock will reflect the performance of the following businesses:
- Mass Markets
- Wholesale Services
- Small Business
- Dial-up Internet Service
- Paging
- Prepaid Card
MCI stock will provide investors with dividend income and will track the Company's
high-cash flow consumer, small business, wholesale voice-based long-distance and dial-up
Internet businesses. With annual revenues of more than $16 billion, MCI will focus on
providing shareholders with an income-oriented investment opportunity linked to some
of the Company's most established enterprises. The MCI management team will be
compensated based on its ability to generate strong operating cash flow, reduce debt and
return excess cash flow to MCI shareholders.
As one of the largest providers of consumer long-distance services, MCI will leverage its
globally recognized brand, marketing channels and broad consumer product offerings.
MCI has one of the world's largest and most successful telemarketing operations,
encompassing 18 call centers.
MANAGEMENT STRUCTURE
Bernard J. Ebbers will remain the Company's president and chief executive officer. Scott
Sullivan will remain the Company's chief financial officer, reporting to Mr. Ebbers.
MCI's management structure, reporting up to Mr. Ebbers, will be named in the coming
weeks.
The WorldCom, Inc. Board of Directors will govern the activities of both WorldCom and
MCI.
TRANSACTION SPECIFICS
Upon shareholder approval of the tracking stocks, WorldCom, Inc. shareholders will
receive one share of MCI stock for every 25 shares of WorldCom, Inc. common stock
held immediately prior to the tracking stock distribution date.
MCI stock will initially pay a quarterly dividend of approximately $75 million ($300
million per year). MCI will initially be allocated notional debt of $6 billion and the
remaining WorldCom, Inc. debt (approximately $17 billion) will be allocated on a notional
basis to the WorldCom tracking stock.
The Company expects to file its registration/proxy statement with the Securities and
Exchange Commission before the end of 2000, to hold its shareholder meeting to vote on
the tracking stock plan in the first half of 2001 and to effect the distribution of the MCI
stock shortly after shareholder approval. No regulatory approvals are expected to be
required.
NOTE TO MEDIA: WorldCom, Inc. will conduct a media call at 1:15 p.m. EST. For
those in the U.S. please call U.S. 1-888-566-5969, passcode 'WORLDCOM.'
International callers may join by dialing 1-712-271-3626, passcode 'WORLDCOM.'
ABOUT WORLDCOM
WorldCom, Inc. (NASDAQ: WCOM) is a preeminent global communications company
for the digital generation, operating in more than 65 countries. Global revenues in 1999
were $36 billion, with $15 billion from high-growth data, Internet and international
services. WorldCom provides the innovative technologies and services that are the
foundation for business in the 21st century. For more information go to
http://www.wcom.com
FORWARD-LOOKING STATEMENTS
The foregoing are "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended, including statements concerning future
operating performance, share of new and existing markets, and revenue and earnings
growth rates. Such forward-looking statements, which are not a guarantee of performance,
are subject to a number of uncertainties and other factors, that could cause actual results
to differ materially from such statements, including vigorous competition; the ability to
establish a significant market presence in new geographic service markets, and the success
and market acceptance of new products and services. For a more detailed description of
the factors that could cause such a difference, please see WorldCom, Inc.'s filings with the
Securities and Exchange Commission. The Company disclaims any intention or obligation
to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
We urge investors and security holders to read WorldCom, Inc.'s Registration Statement
on Form S-4, including the prospectus and proxy statement, when they become available,
because they will contain important information. When these and other documents
relating to the transaction are filed with the U.S. Securities and Exchange Commission,
they may be obtained without charge from the SEC's website at http://www.sec.gov.
Holders of WorldCom, Inc. stock may also obtain each of these documents (when they
become available) for free by directing your request to WorldCom, Inc., c/o Investor
Relations Department, 500 Clinton Center Drive, Clinton, Mississippi 39056. This
communication shall not constitute an offer to sell or the solicitation of an offer to buy,
nor shall there be any sale of securities in any state in which the offer, solicitation or sale
would be unlawful prior to registration or qualification under the securities laws of any
such state. No offering of securities shall be made except by means of a prospectus
meeting the requirements of Section 10 of the Securities Act.
WorldCom, Inc. and certain other persons referred to below may be deemed to be
participants in the solicitation of proxies of shareholders to adopt the proposals which
will be set forth in the proxy statement contained in WorldCom, Inc.'s Registration
Statement on Form S-4. The participants in this solicitation may include the directors
and executive officers of WorldCom, Inc., who may have an interest in the transaction
including as a result of holding shares of common stock and/or options to acquire the
same. A detailed list of the names and interests of WorldCom, Inc.'s directors and
executive officers is contained in the Company's proxy statement for its 2000 annual
meeting, which may be obtained without charge at the SEC's Internet Website at
http://www.sec.gov.
WorldCom and MCI - Frequently Asked Questions
Q.1 What is the purpose of WorldCom's announcement?
WorldCom, Inc. is realigning its world-class assets and brands to better focus on
the customer bases they serve. Today, the Company serves two distinct groups
of customers: corporate enterprises and wholesale and consumer customers. The
Company will maintain a tracking stock, WorldCom (NASDAQ: WCOM), that
reflects the performance of services delivered to our core corporate enterprise
customers including the high-growth data, Internet, web hosting and international
businesses. The Company will also create another tracking stock, MCI
(NASDAQ: MCIT), that tracks the performance of our high-cash flow consumer
and wholesale long-distance voice businesses. These steps will allow the
Company to better focus our resources on serving the distinct needs of our
corporate enterprise customers and our wholesale and consumer customers.
Q.2 What is a tracking stock?
Tracking stock is a separate class of a company's common stock designed to
provide a return to investors based upon the financial performance of a distinct
business unit of the company, sometimes referred to as the targeted business. The
ownership of the targeted business does not change, and while each of the classes
of stock trade separately, all shareholders are common shareholders of the
company.
Q.3 Why is WorldCom doing this?
The realignment of our businesses will enable WorldCom and MCI to more
efficiently execute their business strategies by providing greater management and
resource focus to more adequately address the unique fundamentals of each unit.
Because we will report financial results for WorldCom and MCI (in addition to
the consolidated WorldCom, Inc. results), it will help investors to understand the
value of each business. This will provide investors a choice between the high
growth of WorldCom and/or the value opportunity and dividend yield of MCI
without having to invest in both at the same time.
Q.4 Do these actions constitute a change in strategy at WorldCom?
No. These actions provide greater clarity between the two businesses but does
not alter our strategy. Our strategy at WorldCom is to be a global provider of
communications services to corporate enterprises, while our strategy at MCI is to
provide high-quality voice communication services to consumer and wholesale
consumers.
Q.5 What differentiates WorldCom's plan and strategy?
Our actions mark a reaffirmation of our strategy to focus separately on our high-
growth data-driven corporate enterprise businesses, and our mature consumer-
oriented business. We are not splitting up businesses that were intended to
operate together, but simply realigning assets and brands with their respective
customer bases: WorldCom as the "generation d" corporate enterprise brand, and
MCI as the nationally-recognized consumer brand. Finally, we expect to
complete this transaction very quickly (within the first half of 2001) without any
operational disruptions.
Q.6 Why did WorldCom choose a tracking stock over a spin-off?
We want to maintain the integrity of the company and its ability to serve
customers with the products and services they want. By issuing a tracking
stock, the company will retain the advantages of doing business as a single
company as we do today because each group will benefit from cost savings
and synergies. These advantages include lowering overall borrowing costs
by maintaining the credit rating of the combined company, retaining tax
consolidation benefits, and allowing the businesses attributed to each group
to capitalize on relationships with businesses attributed to the other group.
These benefits would not be available if the two businesses were separated
in a spin-off transaction.
Q.7 Are there other businesses that WorldCom, Inc. management would
consider for a tracking stock?
With these two tracking stocks, we have put together the businesses with
common assets and customers and we believe this structure will maximize
value for all parties. However, the Company's management continually
evaluates all options that have potential to create additional value for its
shareholders.
Q.8 How will WorldCom and MCI compensate management?
Incentives of executives and other employees will be closely aligned with the
performance of their respective units, through stock options and/or cash
incentives of the tracking stocks of each group.
Q.9 On what basis was the dividend policy established?
The dividend for MCI was based on our desire to return a significant portion of
the cash generated from operations to shareholders on a consistent basis. In
addition, we believe the steady cash flows generated will afford us the
opportunity to retire a significant amount of debt on a yearly basis. With respect
to WorldCom, we do not plan to institute a dividend given the significant growth
and investment opportunities associated with these businesses.
Q.10 How will this affect WorldCom, Inc.'s credit ratings?
We are not increasing the amount of borrowings by the Company on a
consolidated basis. Therefore, we do not expect that this transaction would have
any impact on our credit ratings.
Q.11 Will WorldCom have an inter-group interest in MCI?
No. The Company intends to distribute 100 percent of MCI tracking stock to
shareholders of WorldCom, Inc. as of the effective date. At the same time, the
Company will reclassify WorldCom common stock as WorldCom tracking stock.
After this distribution, WorldCom, Inc. will continue to own 100 percent of the
assets of the WorldCom and MCI businesses.
Q.12 How does the Company intend to ensure that cash flow from one group will
not be reinvested in the other group? Are there financial obligations from
WorldCom to MCI or vice versa?
The board will adopt a policy that earnings and cash flow generated from the
business of WorldCom or MCI will be used only for reinvestment in the business
of the entity generating such earnings, for the repayment of debt, for the payment
of dividends or the repurchase of shares of tracking stock related to that group.
However, funds of one entity may be loaned to the other and will accrue interest
at established, market based rates. In addition, holders of both classes of tracking
stock will remain common shareholders of WorldCom, Inc. and be subject to all of
the risks associated with an investment in WorldCom, Inc. and all of its
businesses, assets and liabilities.
Q.13 How will this change affect all of WorldCom's stakeholders including
customers, employees, equipment vendors and suppliers?
The realignment and creation of tracking stocks will provide investors with a
choice between the high growth of WorldCom, Inc. and the value opportunity and
dividend yield of MCI. We believe that the choice, enhanced management focus
and transparency resulting from these actions will result in increased value for
shareholders.
Q.14 How is this action intended to benefit investors?
The separation will highlight the WorldCom stock that is targeted toward growth
investors: high revenue, EBITDA, and EPS growth as well as our commitment to
maintain high capital spending to continue the growth of these businesses. MCI
stock will highlight high cash flow and dividend yield providing an investment
vehicle for income-oriented investors.
Q.15 How will the two groups cooperate in this new structure?
No significant changes will occur as a result of these actions. The primary inter-
group relationship will be the selling of wholesale voice minutes by MCI to
WorldCom and the provisioning of various general and corporate services. The
wholesale marketing of minutes is a mature, transparent market. Prices will be set
at then prevailing market rates. MCI will purchase transport, either through long-
term leases or purchases, from WorldCom, Inc., which will control the
communications network.
Q.16 How do these actions help the Company address the increasingly
competitive landscape for wholesale and consumer voice communication
services?
The wholesale and consumer voice businesses are mature, profitable businesses
where revenue growth is difficult to achieve. These actions will provide
management of MCI incentives to position these mature businesses more
competitively in the long-term.
Q.17 Does this action reflect a diminished commitment to, or lack of confidence
in, the consumer long distance market by WorldCom, Inc.?
No. The consumer long distance business is important to WorldCom, Inc. and is a
key element of the MCI tracking stock. In fact, this announcement reinforces our
commitment to the consumer long distance market by realigning our assets to
better serve our customers in this market.
Q.18 Will the tracking stock structures alter capital budget allocations to
WorldCom and MCI in the future?
WorldCom, Inc. will allocate capital appropriately to ensure that WorldCom has
sufficient resources to fund its growth and MCI has sufficient resources to sustain
its cash flow.
Q.19 How does this new stock structure affect another company's ability to
acquire WorldCom, Inc., WorldCom or MCI? Would you consider selling
either entity if approached?
This structure is not intended to make it any easier or harder for another company
to acquire WorldCom, Inc. However, there are certain limitations on the ability of
another company to control a tracked group without acquiring both tracking
stocks. We are currently not considering further actions but will continue to
evaluate all options that can potentially create shareholder value.
Q.20 How will these actions affect the Intermedia merger agreement?
The Intermedia transaction is expected to close prior to the shareholder vote to
approve the tracking stocks. Upon closing of the Intermedia transaction, the
Intermedia shareholders will become shareholders of WorldCom, Inc. Intermedia
shareholders will receive the same combination of tracking stocks as current
shareholders of WorldCom, Inc. Neither the Intermedia nor the Digex Board of
Directors will need to reconsider its approval of the Intermedia merger with
WorldCom, Inc. in light of this action.
Q.21 What voting rights will WorldCom and MCI shareholders have after the
stock distribution?
Voting rights of WorldCom and MCI shareholders will be prorated based on the
relative market values of WorldCom and MCI, with no predetermined maximum
limit on the percent of vote either group may represent.
Q.22 Will the Company conduct separate annual meetings for WorldCom and
MCI shareholders?
No. The Company will conduct shareholder meetings that encompass all holders
of WorldCom, Inc. common stock. WorldCom and MCI shareholders will vote
together as a single class on all matters brought to a vote of shareholders, including
the election of directors.
Q.23 How will WorldCom, Inc. report earnings for the consolidated company and
each of the tracking stocks?
Because the Company is unchanged as a legal entity it will continue to issue
consolidated financial statements which consolidate WorldCom and MCI. In
addition, the Company separately will report the financial results of WorldCom
and the results of MCI.
Q.24 Will MCI have a separate board of directors?
No. MCI is not a separate corporation and the legal structure of WorldCom, Inc.
is not changing. The WorldCom, Inc. Board of Directors will manage the activities
of both WorldCom and MCI. Management of WorldCom and MCI will report to
WorldCom, Inc.'s president and chief executive officer.
Q.25 How will a single board of directors resolve issues in which the interests of
the holders of WorldCom and MCI may conflict?
The board will have the same fiduciary duties to holders of WorldCom and MCI
stock that it currently has to holders of the existing WorldCom, Inc. common
stock. That duty is to act in its good faith business judgment of the best interests
of the company as a whole.
Q.26 Does WorldCom have the ability to convert one class of common stock into
the other class of common stock?
Yes. The board may convert each outstanding share of MCI tracking stock into
shares of WorldCom tracking stock at a premium of 110 percent of the relative
trading value of MCI for the 20 days prior to the announcement of such
conversion. No premium will be paid on a conversion which occurs after three
years of issuance of the MCI stock.
Q.27 What would the shareholders of WorldCom or MCI stock receive if all or
substantially all of their respective assets were sold?
The shareholders would receive either: (1) a distribution equal to the fair value of
the net proceeds of the sale, either by special dividend or by redemption of shares,
or (2) a number of shares of the remaining entity's common stock having been
calculated in accordance with a predetermined conversion premium.
The foregoing are "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended, including statements concerning future
operating performance, share of new and existing markets, and revenue and earnings
growth rates. Such forward-looking statements, which are not a guarantee of performance,
are subject to a number of uncertainties and other factors, that could cause actual results
to differ materially from such statements, including vigorous competition; the ability to
establish a significant market presence in new geographic service markets, and the success
and market acceptance of new products and services. For a more detailed description of
the factors that could cause such a difference, please see WorldCom, Inc.'s filings with the
Securities and Exchange Commission. The Company disclaims any intention or obligation
to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
We urge investors and security holders to read WorldCom Inc.'s Registration Statement
on Form S-4, including the prospectus and proxy statement, when they become available,
because they will contain important information. When these and other documents
relating to the transaction are filed with the U.S. Securities and Exchange Commission,
they may be obtained without charge from the SEC's website at http://www.sec.gov.
Holders of WorldCom, Inc. stock may also obtain each of these documents (when they
become available) for free by directing your request to WorldCom, Inc., c/o Investor
Relations Department, 500 Clinton Center Drive, Clinton, Mississippi 39056. This
communication shall not constitute an offer to sell or the solicitation of an offer to buy,
nor shall there be any sale of securities in any state in which the offer, solicitation or sale
would be unlawful prior to registration or qualification under the securities laws of any
such state. No offering of securities shall be made except by means of a prospectus
meeting the requirements of Section 10 of the Securities Act.
WorldCom, Inc. and certain other persons referred to below may be deemed to be
participants in the solicitation of proxies of shareholders to adopt the proposals which
will be set forth in the proxy statement contained in WorldCom Inc.'s Registration
Statement on Form S-4. The participants in this solicitation may include the directors
and executive officers of WorldCom, Inc., who may have an interest in the transaction
including as a result of holding shares of common stock and/or options to acquire the
same. A detailed list of the names and interests of WorldCom Inc.'s directors and
executive officers is contained in the Company's proxy statement for its 2000 annual
meeting, which may be obtained without charge at the SEC's Internet Website at
http://www.sec.gov.
