Euphoria Over Merger Lifts Stock Of WorldCom, MCI, British Telecom
June 23, 1998 4:19 PM
By Shawn Young, Staff Reporter
NEW YORK -(Dow Jones)- Merger euphoria lifted
shares of WorldCom Inc. and MCI Communications
Corp. Tuesday to their second consecutive 52-week
highs, and American depository receipts of British
Telecommunications PLC hit another in a string of recent
52-week highs.
Hurdles to the planned merger between WorldCom and
MCI are falling, which is good news for British Telecom
as well as for the two U.S. long-distance giants.
The closing will put $7 billion in cash into British
Telecom's pocket in exchange for its 20% stake in MCI.
Upon closing, British Telecom will be free to sign on
with a new U.S. partner.
British Telecom had planned to merge with MCI, but
that deal fell apart when WorldCom, of Jackson, Miss.,
won a bidding war for Washington-based MCI.
"There's a lot more confidence that the cash is going to
come in," said analyst Stephanie Comfort of Morgan
Stanley Dean Witter.
She noted that, in addition to feeling hopeful about a
smooth and timely closing for the WorldCom-MCI
merger, investors are starting to feel good about the
companies' second-quarter earnings.
"There's a fundamental bent as well as a strategic bent,"
she said.
WorldCom shares (WCOM), which reached a
52-week high of $47.625 Monday, traded as high as
$48.125 Tuesday before closing at $47.9375, up 37.5
cents, or 0.8%, on Nasdaq volume of 12.5 million.
Average daily volume is 9.6 million.
MCI (MCIC) stock leapfrogged Monday's 52-week
high of $57.125 to hit $58 Tuesday. At the close, the
shares were up 75 cents, or 1.3%, at $57.6875 on
Nasdaq volume of 4.5 million, compared to a daily
average of 4.7 million.
British Telecom's NYSE-listed American depository
shares (BT) closed at their third 52-week high in a
week, rising $6.125, or 5.2%, to finish at $123.50 on
volume of 39,900. Average daily volume is 37,226.
None of the companies has released news that would
account for the surge, spokesmen said, although British
Telecom had a meeting with analysts in London last
week that resulted in several upgrades of its stock.
European Union antitrust officials took a hard line on the
WorldCom-MCI merger for fear that the combined
company would have too much power over the Internet.
But they now are ready to sign off on the deal, pending
resolution of some "very minor" issues. At closing, the
deal would be the largest merger to date in an industry
mad for consolidation.
MCI is seeking to appease regulators by selling its retail
and wholesale Internet business. Sources close to the
negotiations said MCI is unlikely to announce a sale
agreement before European regulators formally endorse
its merger, but investors are confident a deal will be
worked out quickly. The MCI Internet sale won't hurt
the combined company, analysts say.
Whatever sale MCI makes is likely to include promises
to keep its hands off thousands of customer accounts
that get transferred to the new owner of the Internet
business. However, one market rumor says MCI will be
allowed to keep the considerable number of business
customers who are also WorldCom customers. In
addition, one rumor says MCI might have to stay away
from its old customers for only 18 to 24 months instead
of as long as five years.
Likely buyers for MCI's Internet business include British
Telecom and Cable & Wireless PLC (CWP), which
had agreed to buy MCI's wholesale Internet business
before MCI was forced to broaden the scope of the
sale. Among the other possible bidders are: Qwest
Communications International Inc. (QWST), IXC
Communications Corp. (IIXC) PSINet Inc. (PSIX),
and Williams Cos. (WMB).
Buying MCI's Internet business could be a great move
for British Telecom, which would strengthen its presence
in the U.S. and on the Internet with such a deal, said
Dan Campbell, analyst at Palley Needelman Asset
Management in Newport Beach, Calif.
As it casts about for a new U.S. partner, British
Telecom is reportedly considering a global joint venture
with AT&T Corp. (T). Company officials declined to
comment. Speculation about a pending agreement
helped fuel the rise in British Telecom stock.
While it is possible the companies are considering
working together, a merger is unlikely, said Comfort of
Morgan Stanley.
-Shawn Young; 201-938-5248
Copyright (c) 1998 Dow Jones & Company, Inc.
All Rights Reserved.
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