Part of a DJ article of March 10, 1998 4:43 PM (the second part deals with GTE's concerns)
More Scrutiny Not Seen Greatly Delaying MCI-WorldCom Deal
By Michael Rapoport and Shawn Young
NEW YORK (Dow Jones)--The stepped-up antitrust
probe of WorldCom Inc.'s (WCOM) $37 billion deal to
buy MCI Communications Corp. (MCIC) shouldn't
cause a significant delay in closing the merger, and
doesn't threaten to torpedo the deal, observers said
Tuesday.
Most analysts, antitrust experts and arbitrageurs
watching the deal weren't fazed by the news that the
Justice Department was widening its investigation. While
some said it's possible that the companies' projected
closing of the deal this summer may now be a bit
optimistic, and that MCI and WorldCom may have to
divest assets or take other steps to get regulators to sign
off on the deal, the observers think the companies
should still be able to complete the merger not too far
from their timetable.
"There's certainly no obvious reason why they couldn't
make that timetable," said Joe Sims, an antitrust attorney
with Jones Day Reavis & Pogue in Washington. "There's
still a lot of time left. This is only March."
One arbitrageur who asked not to be named said the
intensified investigation was "fully anticipated and
expected." His reaction when he learned that the Justice
Department had asked for more information from the
companies: "Thank God that's all it is."
As reported Tuesday in The Wall Street Journal, the
Justice Department has taken a variety of steps that
indicate it is stepping up its antitrust probe of the deal.
The focus is on the market for the pipelines to get onto
the Internet, known as backbones, in which WorldCom
is already a huge player. By some estimates, the
acquisition of MCI, along with the network assets
WorldCom recently acquired from America Online Inc.
(AOL) and CompuServe Corp. (CSRV), would give
WorldCom control of more than half of all Internet
traffic.
MCI said it sees the inquiry as routine and doesn't
expect any difficulty. "We believe this is par for the
course," said Frank Walter, an MCI spokesman.
And Scott Cleland, a telecommunications policy analyst
for Legg Mason Precursor Group, noted that the fact
that the Justice Department is taking a close look at the
companies' Internet operations isn't anything that hadn't
been known before. "It couldn't surprise anybody,
because these are legitimate concerns, but these are not
deal-breaker problems," Cleland said.
Still, both Cleland and Tom Burnett of Merger Insight, a
New York institutional research firm that focuses on
large corporate takeovers, think that while the deal isn't
in jeopardy, the closing may get pushed back a little.
The companies' projected mid-summer closing was
overly ambitious to begin with, they said; Burnett
believes it may be delayed until the end of September,
and Cleland thinks it's possible it could be pushed into
the fourth quarter.
But others think the deal will get done on time. Joseph
Bonocore, national director of KPMG Peat Marwick's
Telecommunications Industry Group, said regulators will
be "timely" in their probe, and MCI and WorldCom "will
push it as much as possible."
Both companies' stocks were off on news of the
heightened probe. MCI recently was trading at 46 3/16,
off 1 1/8, and WorldCom was trading at 38, off 1/2.
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