WorldCom to buy Intermedia for US$3bil (gets 54% of Digex)
Monday, September 4 2000
NEW YORK--WorldCom Inc is in the final stages of buying Intermedia
Communications Inc for US$3 billion, or US$39 a share, in cash and stock, Dow
Jones reported, citing unidentified people familiar with the matter.
The No. 2 US long-distance company will also assume more than US$3 billion in
Intermedia debt, some of which is expected to come due soon according to the people,
the news service reported.
Intermedia, whose investment in the Web-hosting company Digex Inc is worth more
than its own market value, rejected a US$22 a share offer by Global Crossing Ltd on
Friday, people familiar with Intermedia's plans said. A third bid by Exodus
Communications Inc for Digex alone was rejected Wednesday, one person said.
Intermedia owns more than half of Digex, which has been for sale since July.
Intermedia's market value is about US$1.2 billion, while the Digex stake is worth about
US$3.3 billion.
WorldCom's offer doesn't appear to have been approved by Digex's board, Dow
Jones said. WorldCom may therefore have to make another bid for Digex's minority
shares, which could be expensive with the company's US$5.3 billion market
capitalization, the newswire said. Intermedia's shares traded in Germany surged 19.10
euros, or 82 percent, to 42.50 euros (US$38.29).
WorldCom spokesman Brad Burns and Global Crossing spokeswoman Kim Polan
said over the weekend that their companies don't comment on rumor and speculation.
Alice Andors, a Digex spokeswoman, said she didn't have any information on
Intermedia's plans. "There hasn't been any announcement on what Intermedia's doing,"
she said. "I can't comment on a rumor."
Intermedia spokesman Alan Hill didn't return phone calls seeking comment. Exodus
spokeswoman Maureen O'Connell also wasn't available for comment.
Friday meeting
Intermedia rejected the Global Crossing bid at a meeting in New York on Friday, a
person familiar with meeting said. Among those present were WorldCom Chief
Executive Bernard Ebbers and John Stupka, president of the company's Wireless
Solutions unit; Intermedia Chief Executive David Ruberg; and Digex Chief Executive
Mark Shull, the person said.
Global Center offered about US$22 a share for Intermedia, in a transaction that would
have combined GlobalCenter, Intermedia and Digex into a new, publicly traded
company that GlobalCenter would have controlled.
In its most recent quarterly filing with the Securities and Exchange Commission,
Intermedia had 54.2 million shares outstanding. It had US$2.4 billion in long-term debt.
Different paths
Tampa, Florida-based Intermedia said in July that it hired Bear, Stearns & Co to
examine options for Digex. Bear, Stearns also declined to comment.
"Our goals are to simplify our business strategy and better align network assets," Robert
Manning, Intermedia's chief financial officer, said in a statement at the time.
Intermedia and Digex have followed different paths since Intermedia paid US$150
million in cash for Digex in July 1997.
Digex, based in the Washington suburb of Beltsville, Maryland, focused on providing
storage for corporate Web sites, monitoring their performance and providing Internet
connections. Its client roster includes Ford Motor Co, JP Morgan & Co and Martha
Stewart Living Omnimedia Inc.
The 13-year-old Intermedia sold basic phone services to businesses and government
agencies and basic Internet connections, while it tangled for customers with BellSouth
Corp.
As enthusiasm for Internet-related companies soared, Intermedia sold Digex shares to
the public in July 1999 and again in February. The shares rose to as high as US$184 on
March 10, or 8.5 times the initial sale price. That gave it a market value of about
US$11.7 billion--78 times what Intermedia paid for it.
Intermedia
Intermedia shares slumped after March along with the rout in Internet stocks. They
surged 16 percent to about US$41.63 on June 8 after a report that Broadwing Inc,
another telecommunications company, was in talks to buy it. Intermedia shares fell
when no transaction materialized.
Intermedia shares extended their slide when the company warned sales this year would
be 10 percent to 15 percent below analysts' expectations.
The company blamed difficulty installing some data and Internet products. Intermedia
also filed a lawsuit, accusing BellSouth of failing to meet performance commitments and
failing to pay US$100 million for terminated calls.
As for Digex, its shares jumped 13 percent on August 1 after it raised revenue
projections for the rest of the year and 2001.
The company expects about US$165 million in sales in 2000, or 10 percent more than
an earlier estimate of US$150 million and US$300 million next year, the company said.
Sales totaled US$59.8 million in 1999. Second-quarter sales more than tripled, the
company said. It's expected to lose US$2.25 a share in 2000, and lose US$2.47 in
2001, according to First Call/Thomson Financial.
Digex ended the quarter with 673 customers, up 20 percent from last year. New clients
included Men's Wearhouse Inc and Sony Corp. The company's services mesh with
WorldCom's "generation d" initiative, which focuses on data access and transmission.
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