Ebbers String Of Personal Investments. Bernie Ebbers built a personal empire the way he built WorldCom: with bold deals, big gambles and costly mistakes.
Over 20 years, while Ebbers turned WorldCom into the USA’s No. 2 long-distance phone company, he also made a string of personal investments that engaged his passions. He bought Canada’s biggest ranch and stakes in two farms, a minor league hockey team, a trucking company, an all-terrain-vehicle dealership, a lumberyard, enough acres of timberland to cover half the state of Rhode Island and a yacht company. He also expanded his original hotel chain.
Ebbers viewed his outside ventures with pride. With childlike excitement, he once gathered top WorldCom officials in a conference room for a slide show of his ranch. He loved hanging around the shipyard and riding tractors on his farms. He spoke animatedly about his hockey team. He even made WorldCom executives sit through discussions of hotel occupancy rates.
Today, the former billionaire is in danger of losing many of his assets just as he lost control of WorldCom when he was ousted as CEO in April. WorldCom is negotiating with Ebbers to unload his ranch and his stakes in the timber properties and lumberyard, people close to the negotiations say, to cover $408 million in loans from the telecom giant. WorldCom has already claimed Ebbers’ yacht-building company.
WorldCom is unlikely to recover all of its loans, a USA TODAY investigation shows. Many of Ebbers’ private ventures have stumbled just like WorldCom. While Ebbers has said little publicly about his non-WorldCom ventures, what’s happened to them sheds light on the management style that also imperiled WorldCom and on one of the 1990s’ most influential business figures.
At his day job, Ebbers helped fuel the telecom boom of the 1990s. He built WorldCom into a titan and rose to No. 174 on Forbes’ list of richest Americans. It was 1999, and he was worth an estimated $1.4 billion.
Likewise, life was good at Ebbers Inc.
”We have all the money in the world,” ranch manager Joe Gardner boasted to land negotiators from a nearby Indian tribe after Ebbers bought the British Columbia ranch in 1998. In Savannah, Ga., Thomas Conboy, who got up to $25 million from Ebbers to turn a military mine-sweeping company, Intermarine, into a yacht builder, would refer to Ebbers as ”the bank,” former employees say.
Now, Ebbers is best known for presiding over one of the biggest corporate meltdowns in history.
Less than three months after his ouster, WorldCom filed the biggest bankruptcy case ever and disclosed the first part of what would grow to a $9 billion accounting scandal. Its collapse has cost investors and creditors tens of billions of dollars. While investigators and attorneys for shareholders have yet to pinpoint Ebbers’ role, if any, in the accounting scandal, they are eyeing his personal ventures for wrongdoing and restitution. ‘Ebbers’ could not be reached for this story. His lawyer declined to comment.
Mixing tactics, worlds
Ebbers mixed his two worlds often. A closer look at his personal business decisions shows that he sometimes made similar mistakes with his own money as with shareholders’ cash, including:
* Overpaying. Ebbers and WorldCom paid a premium for companies during the telecom boom. Now, WorldCom says it may have to take a charge of up to $50 billion in goodwill and other write-downs because those assets are worth much less.
Ebbers also made personal investments at high prices, only to see their values fall.
He reportedly paid nearly $65 million for the British Columbia ranch in 1998. Rudy Nielsen, a Vancouver real estate broker at Niho Land and Cattle, estimated the ranch was worth $48 million to $54 million at the time. Nielsen has said ‘Ebbers’ paid a large ”trophy fee” to own it. The ranch will likely sell for far less because of extensive logging on the property, as well as depressed cattle and timber prices, Canadian real estate and timber experts say. Ranch manager Gardner referred questions to Ebbers.
The same year he bought the ranch, ‘Ebbers’ paid $14 million for Intermarine, then invested nearly $25 million in it, former employees say. It now builds and repairs some of the biggest yachts in the world. Still, it is not expected to fetch more than $10 million when WorldCom accepts one of several pending bids, people involved in the negotiations say.
Another big Ebbers’ investment facing tough market conditions is Joshua Timberlands. In 1999, the company spent $400 million to buy 460,000 acres in Mississippi, Alabama and Tennessee. Joshua also paid about $200 million for more than 80,000 acres in Louisiana, people familiar with the deal say. But prices of several key timber products in the Southeast have declined since then, says the University of Georgia’s Warnell School of Forest Resources. Also, timberland values in the region dropped 15% from 1999 through 2001, says Hancock Timber Resource Group.
Still, without knowing what’s on Ebbers’ property and how he’s used it, it’s hard to put a price tag on it, says Tom Harris, a University of Georgia professor and publisher of Timber Mart-South. ”Compared with buying a high-tech stock in 1999 and watching it disappear, timber has been relatively stable,” Harris says.
Meanwhile, Ebbers is no longer in the minor league hockey business. In September, he was forced to sell his stake in the Jackson Bandits just three years after he brought the sport to his home area of Jackson, Miss. While fans were enthusiastic, arena scheduling problems hurt attendance. Ebbers and his former partners tried to strike a deal for a new $25 million arena. That project is still pending.
Some of Ebbers’ other deals seemed guided as much by a desire to help others as by business acumen such as his 1998 purchase of Polaris Southern Sports, a small all-terrain vehicle dealership in his hometown of Brookhaven, Miss.
Ricky Salyer, who is still one of Ebbers’ Sunday school students, owns a Polaris dealership in nearby Jackson. He says ‘Ebbers’ paid a premium for the business to help the seller, a local family, pay its debts and fund the family’s wish to move overseas as missionaries. ”It was more or less a donation, and a very good-hearted one,” says Salyer, who was also interested in buying the dealership. ”I don’t know of any business venture that (Ebbers) entered for Bernie,” Salyer says. ”He didn’t need the money. He absolutely spread his wealth around.”
Poor management. While Ebbers won praise as a dealmaker, becoming the toast of Wall Street in the 1990s, his management skills in the wake of WorldCom’s fall have drawn severe criticism.
Former U.S. attorney general Richard Thornburgh, appointed by the bankruptcy court to study WorldCom’s failure, said in a recent report that WorldCom’s many acquisitions were poorly integrated and that strategic planning headed by Ebbers was especially weak. In hindsight, many investors also allege that WorldCom’s torrid growth, which fueled its stock price and Ebbers’ reputation, stemmed more from rapid mergers than shrewd management.
Over two decades, WorldCom and Ebbers pulled off some 60 acquisitions. Its $40 billion buyout of MCI in 1998 was, at the time announced, the biggest ever.
After Ebbers pulled off a merger, he was consumed with cost-cutting, former associates say. He reviewed all budgets, did away with free coffee and encouraged a culture in which employees would often drive instead of fly to sales appointments up to 400 miles away.
Meanwhile, big problems festered. Dozens of acquisitions at one time left WorldCom with 55 billing systems, leading to frequent mistakes. ‘Ebbers’ lunched often with WorldCom’s then-CFO, Scott Sullivan, accused of orchestrating WorldCom’s accounting scam, yet Ebbers maintains he knew nothing of the fraud.
Likewise, the few times Ebbers visited Intermarine, he focused on things that were easiest to understand, say former employees. He slashed the marketing budget, criticized the allotment of cellphones, ditched the water cooler and fretted over heating bills.
Meanwhile, Intermarine missed opportunities, says Felix Sabates, chairman and co-owner of Trinity Yachts in New Orleans and founder of marketing firm TSC. He bid $2 million less than Ebbers for Intermarine in 1998. He and other experts say Intermarine should have focused on profitable repair work as the economy faltered and yacht sales fell.
Also, he says, it erred in not building yachts that customers designed themselves. Sabates says some of Intermarine’s boats sold for 25% less than what it would cost his company to build them. ”Bernie didn’t know any better,” he says.
Intermarine declined comment, as did its former chief operating officer, Conboy, who was fired by Ebbers in October.
Stock deals. Just as Ebbers used WorldCom stock to pull off many acquisitions, he also used it to grow his other businesses. Thornburgh says Ebbers used WorldCom shares to secure more than $1 billion in personal and business loans, including loans on behalf of Ebbers’ alma mater, Mississippi College, Ebbers’ Canadian ranch and one hotel business. Thornburgh says it also includes loans to Joshua Timberlands. Three lenders say that $334 million they lent to Joshua Timberlands was not secured by WorldCom stock as a shareholder lawsuit alleges.
When he used his WorldCom stock as collateral, former associates say, Ebbers told them he felt like his outside business investments were essentially ”free.” As the stock rose, he would use his new wealth to fund more outside ventures just as he did when building WorldCom.
Both strategies backfired once WorldCom’s stock started tanking. Without a rich stock to make purchases, WorldCom’s growth faltered. In Ebbers’ personal businesses, lenders who accepted stock as collateral started calling in loans.
WorldCom, fearing that Ebbers would sell big chunks of stock to pay lenders, further hurting WorldCom’s share price, lent him more than $400 million. Lawmakers have criticized that, saying WorldCom shareholders should not suffer because of Ebbers’ personal financial woes.
Loyalty. Ebbers was loyal to friends, family and even to Mississippi. But his loyalty sometimes came at the expense of smart decisions.
In 2000, Ebbers rescued an ailing Mississippi trucking firm, KLLM, from a hostile takeover by a Missouri businessman after being approached by KLLM’s CEO, Jack Liles, who also was a friend. Liles feared an outsider would cut jobs, people familiar with the transaction say. Ebbers and Liles amassed some $30 million to take the firm private. KLLM’s financial results are no longer disclosed, but the refrigerated-trucking sector has fallen on hard times.
Ebbers also proudly built WorldCom in Mississippi, even though global communications companies usually were based in major cities. Newly hired WorldCom Chairman and CEO Michael Capellas plans to run WorldCom from the Washington area where regulators are and where MCI was based.
Ebbers also lifted the fortunes of neighbors, friends and family. In the mid-1990s, he bought a majority stake in Columbus Lumber in his hometown to help the local owner avoid selling the family business to wood-and-paper giant Georgia-Pacific, people familiar with the matter say. The lumber mill is still in business and is still run by the same family.
Meanwhile, his son-in-law, Jay Bourne, oversees Ebbers’ outside ventures along with Mark Lewis, a former banker in Brookhaven.
Keeping a ‘workingman’ image
Despite his wealth, Ebbers maintained a workingman’s image. He often wore boots and jeans. He loved his yacht but not the image it projected or the money it cost to take it out, former employees say.
Today, he faces far different challenges.
His net worth had dropped to less than $300 million a year ago, Thornburgh’s report notes, down from $1.4 billion. It’s probably much less now because his primary asset was his WorldCom stock. According to Securities and Exchange Commission filings, Ebbers owned 14.4 million WorldCom shares in May. That stake would be worth about $3 million today, and likely will be wiped out when WorldCom emerges from Chapter 11.
The Justice Department has yet to conclude its probe into WorldCom’s accounting fraud, so Ebbers could possibly still face charges. Shareholders and lenders, too, could end up going after assets that WorldCom cannot claim.
These days, the increasingly gaunt Ebbers is apparently splitting his time between Aspen, Colo., where he has a condominium, and Brookhaven, where he was spotted recently pushing a grocery cart around the Piggly Wiggly store.
Still, few are counting him out. Even his critics say he could make a comeback if he focused his talents on one company or at least a manageable number.
”It would be very difficult for him to start from scratch all over again, because I don’t know if he can look at the small picture,” says Sabates. ”But he’s extremely talented and intelligent, and no one can take that away from him.”
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