This article suggests analysts like the Intermedia deal...
WorldCom elevates Web hosting with Intermedia buy
September 05, 2000
by Rex Crum
While many Americans were gently easing their ways back to work today following the Labor Day
weekend, WorldCom (WCOM) chose instead to serve notice that the doldrums of summer are indeed
over.
WorldCom announced it would acquire Intermedia Communications Inc. (ICIX) in a deal valued at
$6 billion -- $3 billion in stock and $3 billion worth of Intermedia debt -- and take operational control of
Intermedia's Digex Inc. (DIGX) business Web hosting company. Under terms of the deal, WorldCom
would control approximately 55 percent of Digex's stock and 94 percent of the company's voting interest.
In a press conference announcing the deal, Bernard Ebbers, WorldCom's chief executive officer and
president, left no doubt that the key to the deal was getting hold of Digex in order to put pressure on
business Web-hosting leader Exodus Communications Inc. (EXDS) and cementing WorldCom's
position in the business communications market.
"We have decided to pick out areas that meet certain criteria for making a successful company," Ebbers
said. "This is embracing the building blocks of our strategy," which WorldCom calls "Generation D."
One of the keys to WorldCom's Generation D strategy is services for business customers. And the
marriage between Digex's Web-hosting technologies and WorldCom's UUNet Internet backbone is
considered the lynchpin of that plan.
But Ebbers said Digex would not operate under the UUNet name. Digex's sales force will be able to offer
that company's services to WorldCom's customers.
Analysts praise deal
Several analysts praised the deal, saying WorldCom was taking the right steps to shed an image that had
been dulled due to the failed attempt to merge with Sprint Corp. (FON), which fell apart due to antitrust
concerns from the Department of Justice.
Ebbers said the purchase speeds up WorldCom's move into the managed Web hosting space by 12 to 18
months. "We are not mature enough for managed services (by ourselves), but we won't stand buy and let
a good opportunity go past us," Ebbers said.
Intermedia shareholders will receive $39 of WorldCom stock for each Intermedia share they own.
Intermedia shares soared on news of the deal, gaining more than 40 percent, or $9.19, to hit $32.06 in
mid-afternoon trading. The stock has lost more than half its value since hitting a 52-week high of $77.38
on March 10.
WorldCom shares, meanwhile, were down close to 8 percent, at $34.06, while Digex shares fell nearly
12 percent, to $74.50. |
