Dow Jones news - July 14, 1998 10:46 PM
MCI To Sell Internet Assets To Cable & Wireless For $1.6 Billion
By Jared Sandberg and Stephanie N. Mehta, Staff
Reporters of The Wall Street Journal
NEW YORK -- MCI Communications Corp. has
reached a pact to sell its Internet assets to Cable &
Wireless PLC of London for roughly $1.6 billion in
cash, a move that could at last win approval for the
contentious $37 billion merger between MCI and
WorldCom Inc., people familiar with the talks said.
MCI is expected to announce as early as the close of
the stock markets Wednesday that it is selling all its
Internet assets to the British telecommunications
company. The companies had forged an agreement in
May that called for MCI to sell only its wholesale
Internet business to C&W for $625 million in cash. But
European regulators, who have taken a hard line on the
merger, opposed that sale on the grounds that it didn't
include enough -- specifically, MCI's corporate and
consumer customers, which the Washington-based
company planned to keep.
In an effort to win approval for its WorldCom merger,
MCI finally relented and indicated it would expand its
asset sale. Based upon this, European regulators last
week conditionally cleared the MCI-WorldCom
merger, and U.S. Justice Department officials began
soliciting comments from other telecommunications
companies to determine whether the new terms of the
asset sale satisfy rivals' concerns, an executive familiar
with the talks said. The executive added that such
"market testing" could be concluded as early as
Wednesday.
MCI and WorldCom declined to comment on the
proposed C&W pact. "We look forward to the Justice
Department's decision, and we expect to announce a
buyer soon," an MCI spokesman said. The companies
have said they expect to close the merger by the end of
the summer. The Justice Department declined to
comment Tuesday.
The planned megamerger of WorldCom and MCI has
provoked bitterness from the start. Rivals contended
that the transaction would give the combination
overwhelming control of the major data "backbone" of
the Internet. Regulators soon fell in line with this view,
forcing MCI and WorldCom, which has extensive
Internet assets of its own, to divest themselves of some
of their overlapping businesses.
Under the terms of the proposed sale to C&W,
MCI-WorldCom wouldn't be permitted to attempt to
win back C&W's Internet customers for 18 months,
satisfying one of rivals' main sticking points, an executive
close to the talks said.
The proposed sale would give C&W a greater foothold
in the fast-growing U.S. data market. It also would open
the door to partnerships and joint ventures with large
U.S. carriers looking to tap into its vast
Internet-transmission capabilities.
But MCI's Internet assets almost slipped out of C&W's
grasp. When it became clear that regulators didn't like
the original terms of the deal, C&W feared that MCI
would look for a new buyer and sued MCI to make
sure that C&W would get first crack at a broader asset
sale.
Indeed, people close to MCI and WorldCom say that
rival Williams Cos., a Tulsa, Okla., wholesaler of
long-distance transmission services, at one point
emerged as the preferred buyer for the Internet assets.
"It turned out to be a lot easier to continue with C&W,"
one executive said.
In Nasdaq Stock Market trading Tuesday, MCI shares
rose $2.3125 to $64.3125.
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