Sprint is worth $100B (see below) and G* is worth $6B (current market cap)? If G* reaches 1M customers in 1-1.5 years, how much will each G* customer be worth?
October 4, 1999
Dueling Bids Emerge for Sprint
By LAURA M. HOLSON and SETH SCHIESEL
takeover battle for the Sprint Corporation, the nation's
third-largest long-distance company, erupted over the weekend
as two suitors emerged with competing offers, people close to the
companies said.
If either of the current offers was accepted, the deal would be the largest
business takeover yet.
Sprint's board met yesterday and into the evening to compare a friendly,
$93 billion merger offer from MCI Worldcom Inc., the No. 2
long-distance carrier, and an unsolicited offer of $100 billion from the
BellSouth Corporation, the dominant provider of local telephone service
in the Southeast. Either would be bigger than the largest takeover to date,
last year's $82.5 billion merger agreement between the Exxon
Corporation and the Mobil Corporation -- companies whose market
value has not been stoked by the communications revolution, as Sprint's
has.
People close to the talks said MCI
Worldcom could emerge as the
winner, with an announcement made
early this week.
The takeover fight escalates the
intensity of the consolidation that is sweeping the telecommunications
industry, as even the giants scramble for greater geographic reach and
financial heft, and the ability to offer a full line of local, long-distance,
wireless and Internet access services. Besides Sprint's extensive national
and international long-distance network, the company has a collection of
local telephone operations around the nation, a national wireless network
and one of the major Internet "backbone" networks through which other
companies provide Internet access to consumers.
For consumers, the impact of a Sprint takeover might not be immediately
apparent because rates are already so competitive.
A combined Sprint-MCI Worldcom would pose a larger competitor to
the AT&T Corporation, which would remain the nation's largest
long-distance company. But AT&T's share of the long-distance market
has been eroded steadily for years by MCI and Sprint even as
long-distance prices have tumbled. Those are among the factors that
Federal regulators might weigh in considering whether a Sprint-MCI deal
would pass antitrust muster.
Were BellSouth to succeed in winning the approval of Sprint's board, it
might still take years for the combined company to go through the
additional Federal and state-by-state regulatory reviews that would be
necessary before the company could offer a package of local and
long-distance services in BellSouth's traditional Southeastern region. To
date, no Bell company has received approval to offer long-distance
service within its local-service region.
For the companies that are seeking to acquire Sprint, however, the
impact could be immediate and vast. A deal could quickly yield billions in
cost savings by eliminating overlapping operations -- and, possibly, jobs
-- while expanding product lines.
MCI Worldcom and Sprint had been hammering out the details of a
combination the last two weeks, and both companies' boards had been
planning to meet to consider an $93 billion stock swap -- Sprint's board
yesterday and MCI Worldcom's today. That schedule remained, but the
agenda was altered when BellSouth made an unsolicited $100 billion
stock and cash offer for Sprint on Saturday.
None of the companies would comment yesterday, but people close to
the negotiations provided the details. Sprint's board met in Kansas City,
Mo., all day yesterday -- and well into the evening -- to discuss the
options.
People close to the discussion said that William T. Esrey, chief executive
of Sprint, favored a friendly merger with Worldcom, in part, because he
believes the duo would be a more formidable company in the long run.
Among other benefits, the merger would give
Worldcom much-needed wireless assets.
Sprint's combined operations are split into two
separately traded stocks -- one stock
representing its long-distance network and the
other made up of the company's wireless assets.
Under the MCI Worldcom offer, Sprint shareholders would receive 0.89
MCI Worldcom share for every share of Sprint's local and long-distance
telephone business -- an equivalent of $62.80 a share as of Friday's
market close -- or about $56 billion. MCI Worldcom would also acquire
Sprint's wireless assets for about $32 billion, and pay a premium on top
of that of an additional 0.1547 MCI Worldcom share for every Sprint
wireless share, or about $10.90.
BellSouth, meanwhile, is offering Sprint a combination of stock and cash
valued at $72 a share for Sprint's telephone assets, or about $65 billion.
Although the cash portion of the bid has yet to be determined, it could go
as high as 50 percent of the total offer. BellSouth would also acquire
Sprint's $32 billion wireless operations and create a separate tracking
stock for those assets, offering shareholders a premium of $7.25 for each
share of the wireless stock.
BellSouth is also offering Sprint some price protection with its offer, in
case BellSouth's stock price drops dramatically.
At first glance, BellSouth's $72-a-share bid looks more attractive than
MCI Worldcom's $62.80 bid. But MCI Worldcom's stock price has
slipped almost 13 percent since word first surfaced two weeks ago that it
was considering a Sprint deal. Now, analysts will be keen to see how
BellSouth's share price reacts to news of the company's offer. Any deal
with Sprint is sure to dilute BellSouth's earnings -- from 25 percent to 50
percent depending on the cost savings the combination yields.
Still in question is what Sprint would do with its international partners,
Deutsche Telekom and France T‚l‚com, each of which owns 10 percent
of Sprint. But neither can increase its stake without Sprint's permission,
nor can they easily prevent Sprint's merging with an outside company.
For nearly a year, Deutsche Telekom has held off-and-on discussions to
acquire Sprint outright, and the German company could still emerge as
the eventual buyer -- although France T‚l‚com would have to agree to
such an outcome.
The bidding is yet another result of the Telecommunications Act of 1996,
which removed many of the regulatory walls that had separated different
precincts of the communications industry. Those changes unleashed a
torrent of communications deal making in which multi-billion dollar
transactions have become common.
Since 1996, the seven original Baby Bells have agreed to become four,
with the Bell Atlantic Corporation acquiring the Nynex Corporation and
SBC Communications Inc. acquiring Pacific Telesis Group. SBC has
also agreed to acquire the Ameritech Corporation, a deal that could win
approval from the F.C.C. as soon as today [Page C2] and Bell Atlantic
has agreed to merge with the biggest non-Bell local phone company, the
GTE Corporation. U S West Inc., meanwhile, has agreed to be acquired
by Qwest Communications International Inc., the upstart long-distance
carrier.
The big long-distance carriers have gone on an acquisition tear as well,
with MCI Worldcom being formed last year by the merger of the MCI
Communications Corporation and Worldcom Inc. AT&T, meanwhile,
has agreed to acquire two of the biggest cable television companies,
Tele-Communications Inc. and Mediaone Group Inc.
All along the takeover front, however, none of the nation's big
telecommunications carriers have been as quiet so far as BellSouth, the
dominant local phone company in the Southeast. Besides an agreement in
April to acquire 10 percent of Qwest for about $3.5 billion, BellSouth
has largely stayed away from big deals, at least so far. (The Qwest
investment has not been profitable for BellSouth; its Qwest stake is now
worth only about $2.2 billion.) A spokeswoman for BellSouth would not
comment on the offer yesterday. But it was clear that F. Duane
Ackerman, BellSouth's chairman, has had a dramatic reversal in his
strategic thinking since last spring. As BellSouth's investment in Qwest
was announced, Joseph P. Nacchio, Qwest's chief executive, said he
thought that deal was basically incompatible with BellSouth's investing in
another long-distance company.
Ackerman also appears to have had a wholesale change of heart about
the regulatory climate.
For BellSouth, an acquisition of Sprint would be fraught with far more
regulatory difficulties than would a deal between Sprint and MCI
Worldcom, which may be why BellSouth has made a more lucrative
offer. In fact, a BellSouth-Sprint deal could require divestitures of assets
worth billions of dollars to satisfy regulatory requirements and it could
take many years before the two companies could fully integrate their
remaining operations.
The biggest problem is that BellSouth is not allowed to sell long-distance
telephone or data services in the Southeast until it convinces the Federal
Communications Commission that it has opened its local networks to
competitors. BellSouth has already been rejected by the F.C.C. three
times on that score, once for South Carolina and twice for Louisiana.
Copyright 1999 The New York Times Company
|
