How Salomon played a big part in WorldCom's creation

If WorldCom's bid succeeds then it will mark another stage in its remarkable relationship with Salomon Brothers. Although the US investment bank appears on the credits as WorldCom's adviser, it would be more accurate to describe Salomon as its creator.

Salomon was instrumental in WorldCom's emergence a decade ago, helping arrange its Wall Street flotation, it has advised on all the major deals that have propelled WorldCom up the ranks of US telecom operators and if the latest daring bid succeeds it will be $100m the richer in fees.

But the bank also has another vested interest in seeing MCI fall, not to BT but to WorldCom, since Salomon is also sitting on a huge arbitrage positions that could cost it $100m.

When WorldCom embarked on its dramatic expansion into the US phone market under president Bernard Ebbers, Salomon provided the guidance. The bank was also the adviser to MFS, the local telephones group, and was instrumental in bringing the company together with WorldCom in last year's $14bn merger.

WorldCom's biggest gamble, the takeover bid for MCI, would also solve some of Salomon's problems.

The bank is believed to have built up a $500m arbitrage position by exploiting the gap between MCI's share price and the value of BT's cash and shares offer for the company. When BT renegotiated the deal in August and secured a lower price, the gamble went wrong for Salomon and several arbitrageurs, including the billionaire speculator George Soros.

When WorldCom's bid burst into the open on Wednesday, however, MCI's share price leapt by 20 per cent, taking much of the pressure off the speculators.

It was unclear yesterday whether Salomon had unwound its entire position before WorldCom's bid. Tom King, Salomon's managing director, who helped to arrange the offer, declined to comment. "We don't disclose this and we're not required to," he said last night.

One City trader said: "It's unlikely they would have totally unwound the whole position. If they'd stuck with MCI shares then Salomon's would probably have made back most of what they'd lost."

Salomon also came under scrutiny following the shock profits warning issued by MCI in July. Jack Grubman, Salomon's New York based telecoms analyst, urged that the two companies keep the deal together, telling investors in a note that there was "no deal risk whatsoever."

Mr Grubman and Mr Ebbers have also had a close working relationship for many years. Last December the WorldCom president was given first billing at an industry conference chaired by Mr Grubman, who opened the proceedings by congratulating Mr Ebbers on his "vision and boldness".

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Digital Marketing Exec / Online Marketing Executive

£35 - 40k: Guru Careers: Our client has a new role for a Digital Marketing Exe...

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'