[WSJ: EU's Hard-Line Antitrust Review May Scuttle WorldCom-MCI Deal]
The hard-line antitrust review of WorldCom Inc.'s $37 billion purchase of MCI Communications Corp. could scuttle the deal if WorldCom is told to sell its Internet business, UUNet Technologies Inc., said executives close to the deal.
The companies are under pressure to offer further concessions to European Union antitrust regulators before June 19, when an EU advisory panel meets to consider the planned merger. The commission's concerns center on the strong position that the merged company would have in operating the so-called Internet backbone, or high-capacity lines used to transmit data over the global computer network.
A week before the committee's meeting, which is an important step in the EU regulatory process due to end by the middle of next month, the companies find themselves in a pickle. They have already told regulators that MCI's planned sale of its Internet backbone business to Cable & Wireless PLC would mark complete divestiture of MCI's sizable Internet business. If more of that business is offered up for sale now, it could badly hurt the companies' credibility.
"We've addressed the only antitrust concerns raised by regulators and our competitors, that is: the overlap of MCI's Internet-backbone business with WorldCom's," said an MCI spokesman. "We're selling our backbone and [Internet-service provider] business to Cable & Wireless," he added.
Clearly, though, EU regulators, who have the power to block the merger, aren't convinced that MCI is giving up enough to eliminate the Internet overlap. Competition Commissioner Karel Van Miert said last week that the sale by MCI of its wholesale Internet business to C&W didn't resolve fully the competition problems posed by the merger.
The problem for the commission is that MCI's Internet-backbone business is intertwined with other parts of its operations. "It would be a cleaner solution to sell [WorldCom's Internet unit] UUNet," another commission member noted Tuesday.
But in a recent interview, Bernard J. Ebbers, WorldCom's chief executive, indicated that selling UUNet was out of the question, "because we owned it before announcing our purchase of MCI."
Tuesday, an executive close to both companies said that "Bernie wouldn't sell UUNet. The deal's off in that case." The executive added that "he'd walk away from the deal and pay the $1.6 billion breakup fee to MCI first. Selling UUNet would be a dealbreaker."
Under the merger agreement, WorldCom would have to pay MCI $1.64 billion in cash if the deal doesn't close by the end of 1998. In such a case, WorldCom would likely borrow to pay much of that fee.
MCI is keeping its commercial and residential Internet customers. By selling its wholesale unit to C&W, MCI could simply eliminate the inefficiency of operating two Internet backbones, thus saving money, and transfer its customers' accounts to the WorldCom/UUNet backbone. MCI's spokesman said the current agreement with C&W calls for the United Kingdom company to service those accounts after the sale goes through. But that would undoubtedly change once WorldCom owns MCI.
A WorldCom spokeswoman said that "communications are continuing at the highest levels with the EU and the Justice Department." She declined to comment further, "out of respect for the confidentiality of the process." WorldCom still maintains that it expects the merger to go through on schedule this summer.
Under EU procedures, the commission usually makes a recommendation to the advisory committee, made up of antitrust officials from the 15 EU member states, on whether a merger should be cleared or rejected, and with what conditions. If the companies are to propose other ways to satisfy the EU, "they would be well advised to do it before the advisory committee meeting," the commission official added.
EU officials said the problems raised by Mr. Van Miert are similar to those identified by the U.S. Justice Department, which also must rule on the deal. The EU, however, has tighter deadlines and must issue a final judgment by mid-July. |
