OVERVIEW It began as small company in Jackson, MS by Bernie Ebbers andbecame the darling of Wall Street The industry provided : • Internet services • Long distance services WorldCom was the second largest telecommunication provider in theUnited State. • Grew rapidly through acquisitions and increased demand for telecommunication services • Continuous increase in stock values facilitated acquisitions
WO R L D C O M ’ S AC QU I S I T I O N S 75 mergers of acquisitions of other companies MCI acquisition • The largest merger in the US history • On November 1997, WorldCom and MCI Communication announced their $37 billion merger to form MCI WorldCom Proposed Sprint merger • On October 1999, Sprint and MCI WorldCom announced a $129 billion merger agreement • The deal did not go through due to concerns of it creating mnopoly
ORGANIZATION’S FAILURE The collapse of the organization • In July of 2002 WorldCom filled the biggest bankruptcy ever in the U.S history with a $41 billion dollar debt load and more than $ 107 billion dollars in assets • Filling chapter 11 bankruptcy due to: • Fraud • Accounting misstatements • Managerial issues after the mergers • Bored of director failures
ACCOUNTING FRAUD $ 11 billion accounting fraud over 3 year period ( 1999-2002) The fraud was accomplished in two main ways: • Understatement of operating expenses by capitalizing these costs on the balance sheet rather than properly expensing them • The company inflated revenue by $ 1 billion dollars
I S S U E S A F T E R T H E M E RG E R S Management • WorldCom needed time to learn how to run and manage acquired companies • Failure to inform Wall Street of the time needed for consolidation and digestion of acquisitions • Ebbers desire to protect and build his personal financial condition • Falsification of net growth.
BOARD OF DI RECTORS FAI LURE Neglected the unethical and fraudulent behavior of Ebbers Failed to take initiative to step in and prevent financial fraud
IN CONCLUSION How it happened? • The domination of Ebbers and no checks and constraints placed on his actions. • For personal gains under pressure to meet numbers • Employees failure to communicate fraudulent activities • A financial system with no control mechanism • Audit company’s failure of the company and its culture understanding • Inadequate audit by independent auditors