The Rise And Fall Of Bernie Ebbers

By Tim Padgett/Jackson

Way back in 1998 when the economy still was new, WorldCom CEO Bernie Ebbers was clinching his acquisition of long-distance giant MCI, and the Rev. Jesse Jackson had a bone to pick with him. Speaking at Tougaloo College--a cradle of the civil rights movement located near Clinton, Miss., where WorldCom is headquartered--Jackson rhetorically asked his audience why Ebbers could afford $37 billion for MCI but hadn't donated funds to local black students. Ebbers wasn't present, but LeRoy Walker Jr., a leading black businessman and Tougaloo board member, pulled Jackson aside to set him straight: Ebbers had given Tougaloo more than $1 million along with new information technology. Ebbers had also helped Walker purchase a country club and computers to be used by disadvantaged black youth. "Bernie Ebbers," Walker told Jackson, "is my mentor."

Jackson was won over: yet another of Ebbers' conquests. Ebbers' entrepreneurial vision, friends insist, involved not only stringing together scores of lucrative telecom companies--amassing what is today the nation's second largest long-distance firm--but also helping bridge the racial and economic divides that continue to plague Mississippi. A transplanted Canadian, Ebbers, 60, teaches Sunday school at his Baptist church each week, serves meals to the homeless at Frank's Famous Biscuits in downtown Jackson, Miss., lives modestly in a prefab home, wears jeans and boots to the office and has poured almost all his once considerable fortune back into his company. Walker says Ebbers "is too committed not to make a comeback."

Right now, though, it's hard to find a Friend of Bernie outside Mississippi. When Ebbers, under pressure from WorldCom's board, announced his resignation last week, the company was sinking under $28 billion in debt, a shriveling stock (which closed at $1.79 last week after peaking at $64.50 in mid-1999) and a Securities and Exchange Commission probe into the more than $400 million that WorldCom recently loaned or guaranteed to loan to Ebbers at a charitable 2.15% interest rate. Many disgruntled WorldCom execs were hoping that the new CEO, John Sidgmore, would run the company not from Clinton but from the MCI division offices in Ashburn, Va.

WorldCom, like much of the U.S. telecom industry, looks as broken as a coin phone in a bus station. And so, sadly, does the executive image of Ebbers, who was once the refreshing antithesis of New Economy slick. "I am not a technology dude," he has boasted. But he has slipped nonetheless onto the crowded pyre of '90s corporate excess. "I feel like crying," Ebbers told a Jackson TV station after his resignation last week. "But I am 1,000% convinced in my heart that this is a temporary thing."

Friends and analysts alike agree that it's that kind of optimism that drove both Ebbers' triumph and his downfall. Although he was rated by Forbes in 1999 as one of the 200 richest Americans, with a $1.4 billion net worth, his fortune is in peril. At a time when other infamous chief executives have covertly jettisoned their company stock, he has stubbornly held on to his 27 million shares of WorldCom, many of them bought with margin loans. WorldCom executives say privately that Ebbers agreed to resign largely so he could focus on selling off real estate assets, perhaps even his beloved $60 million ranch in British Columbia.

It could be a long ride down for Ebbers, but then he enjoyed a long ride up. Born to a working-class family and reared in Edmonton, Alta., in western Canada, the 6-ft. 4-in. Ebbers worked as a milkman and bar bouncer before winning a basketball scholarship to Mississippi College, a small Baptist school in Jackson. He stayed on in Mississippi as a basketball coach and hotel owner. Then, in 1983, he met a group of investors who had come to technologically deprived central Mississippi to cash in on the federally mandated breakup of AT&T. Meeting at a diner in Hattiesburg, Miss., the group drew up the plans for LDDS (Long-Distance Discount Services) on a napkin.

It was Ebbers who gave LDDS its mojo--and a mission to democratize U.S. long-distance service. "He was the most focused leader I'd ever seen," says Murray Waldron, one of Ebbers' original partners. Ebbers used a folksier spin. "The thing that has helped me personally," he told TIME in 1997, "is that I don't understand a lot of what goes on in this industry." What he did perceive was that his networks had to keep getting bigger to achieve economies of scale. By 1995, LDDS counted many of America's largest corporations as customers for its vast voice and data network and, after buying IDB, grandly renamed itself WorldCom. It then acquired UUNET, one of the world's largest Internet hookup firms, along with AOL's Internet networking division. Ebbers then brashly outbid British Telecom to grab MCI, using as currency his WorldCom stock, whose value skyrocketed 7,000% during the 1990s.

But when the New Economy, and telecom demand, turned south in 2000, Ebbers' company was caught heavily in debt for a grab bag of telecom companies, many of which were operating pretty much separately and without the efficiencies he had promised. One reason: for all his aw-shucks manner, Ebbers had come to prefer the glamour of dealmaking to the quotidian work of integrating and running a complex business. "At one time we had more than 40 different billing systems," grouses a former high-level WorldCom executive. Ebbers' solution? Keep buying. His latest target was Sprint, but U.S. and European regulators told him no, a setback that accelerated WorldCom's decline.

Even the notorious penny pinching that had delighted Wall Street in WorldCom's heyday came to look eccentric, if not petty. As WorldCom began laying off close to 10% of its 80,000 worldwide employees this year, Ebbers took away such perks as coffee machines and monthly $25 long-distance credits.

At about the same time, the world began to learn a lot more about WorldCom's big loans to Ebbers, intended to help him pay off margin loans so that he wouldn't be required to sell huge blocks of WorldCom stock--a move that might stampede already jumpy investors. Ebbers last week said he had "a 1,000% clear conscience" about the loans, $366 million of which he still owes. But he conceded, "We probably shouldn't have done it." Says a top WorldCom exec: "Tying up so much of your financial life in one single investment like that was really dumb."

Perhaps. But his faith in WorldCom was and is classic Ebbers, and many individual shareholders find it endearing. To hold on to more of his WorldCom stock, he recently sold a favorite toy: a 60-ft. yacht he had named Aquasition. --With reporting by Alice Jackson Baughn/Ocean Springs

With reporting by Alice Jackson Baughn/Ocean Springs