from the new york times...
May 29, 1999
MCI to Acquire Second-Largest U.S. Pager Company
By SHARON R. KING
After denying earlier this week that it was in talks to acquire Skytel Communications Inc., MCI Worldcom announced an agreement late Friday to buy Skytel, the United States' second-largest paging company, for $1.3 billion in stock.
The deal, announced after the stock market closed, will add wireless paging services such as two-way messaging and wireless data communications to the stable of local and long-distance telephone services of MCI, the nation's second-largest long-distance company.
Under terms of the agreement, holders of Skytel common stock will receive 0.25 share of MCI Worldcom for each share of Skytel stock. Based on MCI's closing stock price Friday of $86.375, the deal values each share of Skytel stock at $21.59. Skytel closed Friday at $20.3125.
MCI and Skytel have worked together in the past, with MCI providing long-distance services for Skytel and reselling its paging services. Of Skytel's total 1.6 million customers, 10 percent have MCI accounts.
The acquisition was approved by the boards of both companies, and must now be approved by the Justice Department, the Federal Communications Commission and Skytel shareholders.
"It was not completely unexpected," Linda Varoli, an analyst at Merger Insight, an institutional-research service in New York, said of the acquisition. "With all the consolidation in wireless services, there has been some speculation about what MCI would do to diversify from local and long distance into the wireless market," she said.
Amid speculation that MCI Worldcom and Skytel were discussing a combination, Skytel's shares rose 6.6 percent on Tuesday.
The rumors stemmed from an online business information service, Company Sleuth, which reported that MCI Worldcom had registered the domain name skytelworldcom.com.
MCI Worldcom, however, denied talks and attributed the speculation to the actions of an overzealous employee who had registered the name to prevent others from doing so. In some instances, domain-name squatters have registered names and later charged companies hefty fees to acquire the names.
"We didn't have a deal then," said Scott Hamilton, Skytel vice president for investor relations.
With the boom in the use of wireless telephone services, the paging business has come under intense pressure in recent years. More than 73 million people in the United States now use wireless phones, compared with about 56 million who use pagers.
Seeking to remain competitive with the growing popularity of cellular phones, paging companies have sharply cut their prices and as a result, few are profitable. But Skytel, bucking that trend, had revenue of $500 million last year, a more than 20 percent increase from 1997.
During the last nine months, Skytel has held discussions with several large telecommunications companies, before beginning talks with MCI in March, Hamilton said. In April, Skytel announced that it had hired the investment bank SBC Warburg Dillon Read to explore strategic alternatives.
In an era of telecommunications conglomerates, Skytel felt the need to add some size to remain competitive and continue strong growth, Hamilton said.
Also in April, Skytel formed an alliance with other paging companies to use inexpensive hand-held computers operated on two-way wireless technology.
Earlier this month, Skytel, which is based in Jackson, Miss., joined with Ebay Inc., the No. 1 online auctioneer, to introduce a free service that notifies Ebay customers through their pagers, cell phones and electronic organizers when they have made a winning bid or when their items sell. The service will begin in July.
MCI Worldcom agreed last month to buy a wireless cable television company, CAI Wireless, for $482.8 million to offer voice and data services directly to consumers.
For his prescient efforts, the employee who registered the Internet domain name before the deal is likely to receive few plaudits, said Frank Walter, an MCI spokesman. While the employee "probably feels pretty good about what he did," in fact, MCI "will have tighter controls," which will prohibit similar actions, Walter said.
MCI Worldcom said it expects the deal to add to earnings immediately. The deal is expected to close by the end of this year or early next year, Hamilton said.
The transaction will be accounted for as a pooling of interests.
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