Merger puts Sprint PCS on fast track
herring.com:80/insider/1999/1008/inv-mci.html
By Matthew A. DeBellis
Redherring.com
October 8, 1999
It looks like the biggest merger ever proposed will
leave shareholders of Sprint (NYSE: FON) sitting
pretty.
If the $129 billion deal passes
government muster, Sprint's
wireless division, Sprint PCS
(NYSE: PCS), quickly will give
MCI Worldcom (Nasdaq:
WCOM) a powerful national
presence with an ability to
leapfrog competitors. "[MCI
Worldcom] ended up with the
crown jewel of the industry," says Bryan Prohm, an
analyst with market research firm Dataquest.
Since Sprint created its PCS tracking stock a year
ago, the wireless division's market performance has
been stellar. After trading at its launch last November
at about $18 a share, the stock hit a low of $15 a
share on December 15, 1998, then screamed into $70
territory last month.
Although Sprint PCS ranks sixth
in wireless subscribers with 4
million, according to Dataquest,
it's in prime position to climb over
at least some of its competitors.
In 1994, Sprint PCS and three
cable provider partners together
spent several billion dollars to
build a digital, wireless network
nationwide that now blankets 170
million people. Sprint eventually
bought the interests of its cable
partners, Cox Communications
(NYSE: COX), Comcast (Nasdaq: CMCSK), and
TCI, which now is a unit of AT&T (NYSE: T).
Only two ventures cover more territory: the Vodafone
Airtouch (NYSE: VOD)/Bell Atlantic (NYSE:
BEL)/GTE (NYSE: GTE) wireless venture, formed
last month, and Nextel (Nasdaq: NXTL). Vodafone
boasts a coverage area encompassing 228 million
people and 21 million subscribers. Nextel blankets
180 million people, including 3.6 million subscribers.
If MCI Worldcom pumps up Sprint PCS even more,
other wireless firms may be forced to merge or form
partnerships in order to increase their national and
local presence, Mr. Prohm says.
HOLD THE PHONE
During a press conference Tuesday announcing the
deal, MCI Worldcom President and CEO Bernard
Ebbers said the long-distance business had "lost its
juice," but the wireless market promised growth.
Still, the deal leaves PCS stockholders with a measure
of uncertainty. The proposed merger calls for
shareholders of both Sprint and Sprint PCS to swap
shares with MCI Worldcom. However, Sprint
shareholders are being given added assurance -- the
deal specifies they'll receive $76 a share in MCI
Worldcom stock as long as the stock trades between
$62.15 and $80.85 when the deal closes. PCS
shareholders received no such stipulation.
For every PCS share, investors will get one share of a
new MCI Worldcom PCS tracking stock at a price
yet to be determined and .1547 shares of MCI
Worldcom stock.
"Why is it that the motivating force in this deal is
wireless and we are getting the shorter end of the
stick?" asks Cindy Motz, a vice president at Credit
Suisse First Boston. MCI Worldcom wouldn't
comment.
ON THE WAY
Either way, the stocks of all parties involved could
experience short-term volatility as the megadeal winds
its way through sticky regulatory procedures.
Credit Suisse First Boston rates Sprint PCS stock a
Buy. The investment firm estimates MCI Worldcom is
paying $72 billion for Sprint and $57 billion for the
PCS division.
The deal is expected to close in the second half of next
year.
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