02/11 13:32 MCI WorldCom posts strong profits, forges EDS pact
(Recasts; adds details on EDS pact, stock prices, byline) By Jessica
Hall
NEW YORK, Feb 11 (Reuters) - MCI WorldCom Inc. on Thursday
reported better-than-expected fourth-quarter earnings and announced
a long-awaited, $17 billion deal to swap assets and services with
Electronic Data Systems Corp.
The news sent shares of MCI WorldCom, the No. 2 U.S.
long-distance company, up $4, or about 5 percent, to $80.25 in heavy
trading on the Nasdaq market. Shares of EDS, the world's No. 2
computer services company, gained $2.25 to $48.125 on the New
York Stock Exchange.
Jackson, Miss.-based MCI WorldCom said quarterly earnings,
excluding its investment in Brazilian long-distance carrier Embratel,
were $428 million, or 23 cents a share, compared with a loss of $313
million or 18 cents a share a year ago.
The results slightly exceeded Wall Street's expectations of 22 cents a
share, according to First Call Corp., which tracks analysts' estimates.
The company's revenues rose 14 percent to $8.0 billion from $7.0
billion a year ago, outpacing the revenue growth of its rivals. AT&T
Corp., the No. 1 U.S. long-distance company, said its fourth-quarter
revenues grew 4.8 percent to $13.53 billion. Sprint, the No. 3
long-distance provider, grew its revenues 7.6 percent to $4.1 billion.
MCI WorldCom's fourth-quarter results assumed that the acquisitions
of MCI Communications Inc., CompuServe Network Services and
ANS Communications had occurred at the beginning of the year.
They did not include the MCI Internet business, which was sold late
last year.
The results were driven by strong growth in voice and data revenues
and benefits from the acquisitions, analysts said. International
revenues jumped 55 percent to $328 million, but were slightly less
than some analysts had expected.
Voice revenues, on a proforma basis, rose 8 percent to $5.0 billion.
Data revenues surged 29 percent to $1.6 billion, and Internet
revenues increased 61 percent to $658 million. Traffic volume, or
minutes of use on its network, increased 13 percent year-over-year.
The company told analysts in a conference call it was comfortable it
would meet Wall Street's consensus earnings expectations of $1.97 a
share in 1999 and $2.84 a share in 2000, analysts said.
The agreement with EDS will allow MCI WorldCom to shed its
lackluster "Systemhouse" unit, which provides computer integration
and consulting services for large businesses, and focus on its core
telecommunications business.
Under the deal, EDS will buy the Systemhouse unit for $1.65 billion.
The two companies will swap 13,000 employees and provide about
$15.5 billion in services to each other.
Plano, Texas-based EDS will handle MCI WorldCom's computer
applications development and maintenance services and virtually all
of its infrastructure services. In return, MCI WorldCom will handle the
bulk of EDS' voice and data communications services.
The agreement will help both companies save money and increase
profits as they focus on their main areas of strength, MCI WorldCom
Vice Chairman John Sidgmore said in a conference call.
"This makes a lot of sense for MCI and EDS ... This allows them to
focus on their core strengths and not be distracted learning other
businesses," said Jeffrey Kagan, an independent
telecommunications analyst.
MCI WorldCom-EDS agreement mirrors a similar pact forged in
December between AT&T and International Business Machines
Corp., the world's largest computer services company.
MCI Communications Corp., before its acquisition by WorldCom Inc.,
acquired Ottawa-based Systemhouse in 1995 for $1 billion but the
unit never flourished. MCI WorldCom's information technology
revenues fell 13 percent to $1.7 billion in 1998.
MCI WorldCom said Systemhouse was too small to bid for many
contracts at once and too small to compete against its much larger
rivals, including EDS, IBM and Computer Sciences Corp.
Analysts said the unit will be more fruitful under EDS, which will be
able to quickly mesh Systemhouse with its existing business.
Acquiring Systemhouse will reduce EDS' dependence on business
from General Motors Corp., its former parent and its largest
customer, analysts said.
The deal is the first move by EDS' new chairman and chief executive,
Dick Brown, the former chief executive of British telecommunications
company Cable & Wireless Plc, who joined EDS last month.
MCI WorldCom, which provides local, long-distance, data and Internet
services, was created through a series of 50 acquisitions over the
past decade, with the largest being the $40 billion purchase of MCI
last fall. |
