Oct 4, 2001 12:00 PM

McLeodUSA Announces Sweeping Restructuring, Layoffs

Led by new Chief Operating Officer Chris Davis, McLeodUSA today announced a broad restructuring that calls for the company to kill its national expansion plans, sell $450 million in assets, and cut 15% of its work force. In all, McLeodUSA will take a $2.9 billion charge in the third quarter, $2.5 billion of which is attributable to write-downs of goodwill.

More on this Topic

Industry News

Blogs

Briefing Room

In a analyst briefing today, McLeodUSA officials said they are eliminating redundancies and inefficiencies in the company. By discarding the “distractions” of building out a nationwide data network, the company can focus on its core CLEC data and voice business in their current 25-state businesses.

“We have spent the past seven weeks evaluating the key operational and financial aspects of the business,” said Davis, who took over as chief operating officer and chief financial officer in August. “The company’s rapid growth over the past several years resulted in an overly broad market focus, operating inefficiencies, and inadequate business practices to allow the company to effectively scale.”

The job cuts will come through the sale of its assets and consolidation. Davis said the 11 operational facilities will be consolidated into three, though she did not identify which facilities will be closed. McLeodUSA also offered few details on which assets it will sell off, though Davis did say they would be related to SplitRock, the national data CLEC assets, and other properties related to its national expansion and long-distance businesses.

McLeodUSA revised its financial outlook for 2002, projecting revenues of $1.8 billion and cash flow of $250 million to $275 million. McLeodUSA previously projected revenues of $2.1 billion to $2.3 billion and cash flow of $300 million to $325 million.

The carrier also announced that Forstmann Little’s $100 million investment in McLeodUSA would be postponed. Market troubles since the deal was announced in August has driven the carrier’s share price into the cellar, and McLeodUSA officials said that Forstmann has agreed to wait until prices rebound before placing the investment. McLeodUSA shares were trading at 59 cents per share in mid-afternoon trading.