WHEN FIRE SALES FAIL

One of the overlooked news items last week was Allegiance Telecom's purchase of WorldCom's customer premises equipment distribution and maintenance businesses. The buy was a good one for Allegiance, which can now offer a more complete portfolio of communications services to its business customers. But most striking about the deal was its value. The two businesses generate a combined $120 million in annual revenue and are EBITDA-positive. Allegiance, however, paid just $30 million total — roughly one quarter's revenue. While the more granular financial details of these businesses haven't been announced, it's clear Allegiance got an excellent deal — and that WorldCom was forced to make a sale. That's not surprising. The IXC has said that part of its deleveraging efforts will include the divestiture of non-core assets. But this deal is a bad sign for what those sales might bring. There's no doubt that WorldCom got the most it could for these businesses, but it didn't get enough. While asset sales are not considered a significant part of the company's deleveraging efforts, deals like this won't allow WorldCom to meet even modest goals for these sales. That means the money will have to come from somewhere else — job cuts, new debt used to pay off old, further capex reductions. Something. But at this rate, expect the other shoe to drop because WorldCom knows it can't nickel-and-dime $29 billion in debt.