More on Worldcom's Possible Deals from today's WSJ
MCI Talks With Several Firms On a Deal to Manage Networks
By REBECCA BLUMENSTEIN and GARY MCWILLIAMS
Staff Reporters of THE WALL STREET JOURNAL, December 16, 1998
MCI WorldCom Inc. is in talks with several companies
about an arrangement that would significantly broaden
its ability to manage businesses' giant voice and data
networks, according to people familiar with the situation.
A deal, say the people, will likely involve the sale of MCI
WorldCom's Systemhouse unit, which puts together
computer systems for clients. While the unit, which MCI
purchased for $1 billion in 1995 and now employs 9,000,
is highly regarded, people close to the situation say it
may be too small to win the large-scale contracts that
MCI WorldCom wants.
But an agreement, the people say, would involve much
more than just Systemhouse and could even end up
with MCI WorldCom purchasing a major player in the
market and wrapping the unit into it.
"There is no chance that we are just going to sell the asset," said
one person close to the talks, referring to MCI's desire
for any deal to be part of a broader relationship. "A lot of
customers want us to do the integration for them. We
think it's important to have the networking and systems
capability to do that."
Any agreement would likely include a broad set of
relationships. Among these: the formation of a joint
venture that could provide customers with one-stop
shopping for voice and data networking, and
computer-outsourcing services. At this point, MCI
WorldCom hasn't selected a partner, though people
close to the situation say that Electronic Data Systems
Corp. is one of the companies in discussions. The talks
between MCI and EDS were reported Tuesday in the
Washington Post.
The review of MCI WorldCom's network-management
capabilities, which may go on for another month, is a
major priority for top management as MCI and
WorldCom continue to combine their assets. Broadly,
such an agreement would mirror a similar pact struck by
AT&T Corp. and International Business Machines Corp.
last week. As part of AT&T's pact to purchase IBM's
global network for $5 billion, AT&T agreed to take over
network-communication services for IBM and IBM
agreed to assume computer operations for AT&T.
MCI WorldCom Chairman Bernard J. Ebbers has said
since buying MCI that he wants to be a major player in
the data-networking business, an emerging sector that
enables companies to build and design the information
services they need. It is also considered a strategy to
increase voice and data traffic on MCI WorldCom's own
network.
Analysts say an agreement between MCI and EDS, for
example, would address weaknesses at both
companies. MCI WorldCom's Systemhouse, which lacks
a large global presence, is expected to bring in $1.7
billion in annual revenue, which pales in scope to EDS,
which boasts annual revenue of about $15 billion. EDS
also operates its own telecommunications network that
could be more profitably run by MCI WorldCom, analysts
say. And EDS last week named a top
telecommunications executive, former Cable & Wireless
PLC Chief Executive Richard H. Brown, as its chairman
and chief executive.
"To the extent a deal materializes, we could see a more
efficient use of assets and better margins," says
Raimundo C. Archibold, information services analyst at
J.P. Morgan Securities.
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