WorldCom in Deal to Buy Pager Firm
By Sarah Schafer
Washington Post Staff Writer
Saturday, May 29, 1999; Page E1
MCI WorldCom Inc., the nation's second-largest long-distance telephone
company, has reached a deal to acquire wireless messaging firm SkyTel
Communications Inc. of Jackson, Miss., for about $1.2 billion in stock,
the companies announced yesterday.
The agreement comes just weeks after MCI WorldCom, also based in
Jackson, called off talks to acquire wireless firm Nextel Communications
Inc. of Reston. The companies had failed to agree on a price. In January,
MCI WorldCom dropped out of the bidding for cellular company
AirTouch Communications Inc.
Many analysts feel that wireless is a serious hole in MCI WorldCom's
portfolio of services. Yesterday's deal, if completed, would help to close
that gap, building on several recent acquisitions of companies that provide
cable TV and Internet service over the air.
The SkyTel acquisition is "a building block in our wireless strategy," MCI
WorldCom spokesman Frank Walter said.
Rumors of a SkyTel-MCI WorldCom deal have been swarming ever
since SkyTel hired investment banking firm Warburg Dillon Reed earlier
this year. The buzz grew louder last week when online service Company
Sleuth reported that MCI WorldCom had registered the Internet domain
name skytelworldcom.com." MCI WorldCom later claimed that move
was the act of a lone employee working on the company's Web sites.
MCI WorldCom said it decided to keep the name, suggesting that it might
use the site in the future since it had a long-standing marketing agreement
with SkyTel, which has 1.6 million customers.
MCI WorldCom has been in discussions with SkyTel for a couple of
months, Walter said. He added that the two companies know each other
well and hope to combine much of their management teams. MCI
WorldCom is already a reseller of SkyTel Services, offering its paging
products under the MCI WorldCom name.
On the face of it, the deal is less of a financial risk for MCI WorldCom
than the Nextel acquisition, which would have saddled the buyer with
nearly $7.7 billion in long- term debt. (MCI WorldCom will assume about
$344.6 million in debt in the SkyTel deal.)
SkyTel had 1998 sales of $518.3 million and a net loss of $80.6 million.
"I think it's a reasonable, decent move for them," said Frank Dzubeck,
president of Communications Network Architects in Washington, a
telecommunications consulting firm. But, he added, it is not the knockout
move the Nextel acquisition would have been.
"They have to build something instead," Dzubeck said.
One benefit to starting from scratch, Dzubeck said, is that MCI
WorldCom can focus on building what the wireless industry has dubbed a
third-generation system. These systems have greater capacity for carrying
voice and offer multimedia capabilities, but can be difficult and expensive
to build.
Walter stands by MCI WorldCom's explanation that the company
employee had no knowledge of the merger when he secured the Internet
domain name. But, he said, do not look to the Web for hints of MCI
WorldCom's wireless moves in the future. "There will be much tighter
restrictions," on who registers for what, he said.
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