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BellSouth bids to acquire rival Sprint
Bidding war with MCI WorldCom seen likely
By Gareth Vaughan, CBS MarketWatch
Last Update: 5:47 AM ET Oct 4, 1999 NewsWatch
NEW YORK (CBS.MW) -- Sprint Corp., which is reportedly on the verge of agreeing to being acquired by MCI WorldCom Inc., now has a potentially sweeter last-minute bid from BellSouth Corp. to consider.
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Updated:
10/4/99 7:35:16 AM ET
Sprint's board met Sunday in New York to evaluate the two competing offers but reached no decision before adjourning Sunday night, the Wall Street Journal reported in its interactive edition Monday.
Either deal, if agreed, would likely be one of the largest ever. BellSouth (BLS: news, msgs) reportedly is offering about $72 billion, and it may be prepared to increase its bid. The current proposal includes a premium for Sprint's cellular unit. But it excludes the value of the unit's shares, which trade separately as a so-called tracking stock.
"Sprint is the last big wireless player in the U.S. so lots of people are going to get interested," said Andy Penman, London-based U.S. equity analyst at Greig Middleton Stockbrokers.
Sprint favoring MCI WorldCom
According to the Journal, Sprint (FON: news, msgs) is expected to proceed with a WorldCom bid even though the BellSouth offer, which offers stock and cash, is currently richer. WorldCom's is an all-stock offer that fluctuates in value along with WorldCom's stock price, the Journal reported, citing people familiar with the matter.
The WorldCom (WCOM: news, msgs) offer is currently valued at about $65 billion using the same criteria. Sprint also has about $13 billion in debt that either bidder would assume. Adding the nominal value of the PCS business, which isn't actually being acquired, would put the total value of any deal at more than $100 billion.
"To finance its bid, BellSouth would probably have to come up with the largest debt offering in history -- $35 billion to $40 billion -- that's going to get Wall Street very excited," Penman said.
Sprint is expected to formally vote for the MCI WorldCom offer Monday morning at another meeting. A special committee of the board voted unanimously to proceed with the WorldCom proposal, the Journal reported, citing an anonymous person familiar with the matter.
MCI WorldCom's board is expected to vote on the proposed deal this evening, people familiar with the matter told the Journal.
Both bidders are vying for a company with more than $17 billion in annual revenue with a strong U.S. long-distance and wireless business. BellSouth, Sprint and WorldCom wouldn't comment for the Journal article.
Regulatory hurdles
Each bidder would have regulatory problems to overcome. While WorldCom may have to divest itself of Sprint's Internet business, a BellSouth-Sprint pact could result in significant wireless divestitures or a possible spinoff.
"There are less regulatory hurdles for Bell South as it has less presence in the data and Internet arena's. MCI WorldCom would sell Sprint's data and Internet operations. MCI WorldCom solely wants Sprint's wireless business," said Greig Middleton's Penman.
Penman believes that MCI WorldCom will eventually prevail if it's a straight bidding war between it and BellSouth, although he expects MCI WorldCom to increase its reported bid.
"BellSouth's (reported) offer is worth $72 a share, half in cash and half in stock. MCI WorldCom's bid is $63 per share purely in stock, so MCI WorldCom has some way to go," Penman said.
"I think MCI WorldCom will eventually be the winner and it has a good record of integrating companies," he added, saying that Sprint may be bought for $80 billion.
Penman rates MCI WorldCom stock "buy" and Bell South "hold." Analysts said SBC Ameritech is a possible -- but unlikely -- further bidder for Sprint as it's currently busy dealing with the merger between SBC Communications (SBC: news, msgs) and Ameritech (ATI: news, msgs) which created it.
European giant's may be keen to sell Sprint stakes
European giants Deutsche Telekom AG and France Telecom SA each hold a 10 percent stake in Sprint. Over the summer there was plenty of speculation suggesting that Deutsche Telekom (DT: news, msgs), Europe's biggest telecommunications group, was keen on a bid of its own for Sprint.
Some press reports Monday suggested that this remains the case but Hans Ehnert, a Deutsche Telekom spokesman in Bonn, said the company wouldn't comment on speculation.
However, some analysts are now suggesting that the German giant will be rubbing its hands with glee over the possibility of a bidding war between Bell South and MCI WorldCom for Sprint.
"I think Deutsche Telekom will divest its stake in Sprint and get a good price for it," said Holger Grawe, Dusseldorf -based telecoms analyst at West LB Panmure.
"A German operator bidding for a U.S. operator doesn't offer much cost cutting potential so a higher bid from Deutsche Telekom doesn't make much sense," he added.
But Deutsche Telekom has international expansion as the cornerstone of its strategy. Earlier this year it bought the U.K.'s No. 4 mobile phone operator One-2-One for $13.4 billion. See full story.
Thus analysts say the German giant will have to present a U.S. expansion plan to the markets. Grawe believes that after selling its stake in Sprint, Deutsche Telekom will look to pick up three or four U.S. GSM operators such as Voicestream Wireless (VSTR: news, msgs) and Powertel Inc. (PTEL: news, msgs).
France Telecom looking to Germany
As for France Telecom (FTE: news, msgs), analysts said that it should be happy to divest its stake in Sprint since the collapse of the GlobalOne alliance between the French group, Deutsche Telekom and Sprint, earlier in the year. The French giant declared its relationship with Deutsche Telekom "dead" after the German group tried to takeover Telecom Italia SpA (TI: news, msgs). See full story.
Like its German rival, France Telecom also expanded in the U.K. this summer by taking a 25 percent stake in the cable-TV operator NTL Inc. (NTLI: news, msgs) (see full story), and now sees Germany as the hole in its European presence.
"France Telecom needs cash to buy E-Plus (the German mobile phone operator) which we think they are bidding for," said West LB Panmure's Grawe.
The German utilities, RWE AG and Veba AG (VEB: news, msgs) own 60.25 percent of E-Plus through a joint venture. Veba intends to sell its stake and RWE has appointed Morgan Stanley Dean Witter to "look for strategic opportunities" for its share of E-Plus.
A France Telecom spokesperson wasn't immediately available for comment.
Analysts said that in a straight shoot out, the two European giants would rather see Sprint go to Bell South than see MCI WorldCom prevail.
"Deutsche Telekom and France Telecom would prefer Bell South to be successful because if MCI WorldCom was to win it would increase competition within Europe (whereas) Bell South would give France Telecom and Deutsche Telekom better footprints in the U.S.," Greig Middleton's Penman said.
Gareth Vaughan is a reporter for CBS MarketWatch in London.
Anne Stanley CBS MarketWatch night editor, contributed to this report.
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