<A> MCI WorldCom to Buy Sprint In Record $115 Billion Takeover
Sweetened Merger Offer Blocks Last-Gasp Attempt by BellSouth
By STEVEN LIPIN, NICOLE HARRIS and REBECCA BLUMENSTEIN
Staff Reporters of THE WALL STREET JOURNAL
MCI WorldCom Inc. reached an agreement to acquire
Sprint Corp. for a record $115 billion in stock after the
upstart Mississippi telecommunications company
sweetened its bid, beating back a last-gasp attempt by
BellSouth Corp., according to people familiar with the
matter.
The proposed deal represents the largest takeover in history.
BellSouth Monday modestly
improved its offer for Sprint, but it
was bested by MCI WorldCom's
sheer size and willingness to step
up to the plate with a significantly
improved offer for Sprint. Once again, Bernard J.
Ebbers, MCI WorldCom's deal-making chief executive,
shook up the telecom industry with a blockbuster deal by
using his highflying stock price. William Esrey, Sprint's
chairman and chief executive, is expected to be chairman
of the combined MCI WorldCom-Sprint.
The pact, which is set to be announced Tuesday in New
York, would bring together the nation's second- and
third-largest long-distance carriers, with estimated
revenue of more than $65 billion and cash flow in excess
of $25 billion. The two companies would have 30% of
the consumer long-distance market, with more than 30
million long-distance customers and a global reach from
the U.S. to Europe and Asia. The combination would
create a company with a stock-market value of $200
billion or more, making it the biggest
telecommunications company in the world when its
wireless assets are included.
The transaction, including the acquisition of Sprint's
main phone business and its PCS wireless business, is
valued at $76 a share, so long as the stock stays between
$62.15 and $80.85 a share. MCI WorldCom will issue
between 0.94 share and 1.2228 shares in MCI
WorldCom stock for each Sprint share. In addition, the
holders of PCS shares, which trade as a so-called
tracking stock, will receive tracking stock in MCI
WorldCom plus 0.1547 share of MCI WorldCom stock.
In addition, MCI WorldCom will assume $14 billion in
debt and preferred stock.
Sprint's Suitor
Here's a look at the ups and downs of the combined Sprint and MCI Worldcom:
Strengths
MCI WorldCom gets a long-awaited nationwide
wireless network
Creates a formidable No. 2 competitor to AT&T
Gives MCI WorldCom the scale to emerge as a
dominant global player
Weakness
May have to sell Sprint's Internet backbone to win
regulatory approval
MCI WorldCom moved aggressively after it became
clear to that camp that BellSouth could pay as much as
$77 a share. The higher MCI WorldCom bid makes the
purchase dilutive to cash earnings per share. But MCI
WorldCom will tell Wall Street that if its stock recovers
to more than $80 a share, it will have to pay only about
5% more in stock than its first offer of a fixed ratio of
0.89 share of MCI WorldCom for each Sprint share.
MCI WorldCom is expected to say that the deal is only
2% dilutive to cash earnings per share. Cash earnings,
which is being used by acquirers more frequently,
excludes goodwill charges that must be deducted from
reported earnings.
Throughout the weekslong courtship, the code name for
Sprint was Snow, and MCI WorldCom was dubbed
White. Thus, the deal became Project Snow White. And
when BellSouth jumped in at the last minute, the
Atlanta-based company became Project Blue.
After news broke Monday that a deal was imminent,
shares of Sprint jumped to $60.875, up $3.875 in
composite New York Stock Exchange trading, while
MCI WorldCom climbed $1.125 to $71.625 on the
Nasdaq Stock Market. BellSouth fell to $42.6875, down
$2.6875 on the Big Board, while Sprint's PCS business
climbed to $78.6875, up $3.1875.
Many investors said Monday they thought MCI
WorldCom was the preferred buyer. Indeed, when it
appeared that MCI WorldCom would be paying less than
BellSouth, investors appeared to be backing a MCI
WorldCom-Sprint deal because of the synergies and a
perceived quicker regulatory process. Of course, until
the deal is closed, other bidders could emerge.
"The better combination is Sprint and WorldCom,"
Ophelia Barsketis, a telecommunications-fund manager
at Stein Roe & Farnham in Chicago, said. "It's an easier
'do' on the regulatory front. Besides, this will be a large
transaction, and BellSouth has never swallowed a fish
this big."
Brian Hayward, a portfolio manager at Invesco
Telecommunications Fund, which owns all three stocks,
suggested WorldCom-Sprint is a better fit. "Quibbling
about a few dollars here and there right now, vs. what
fits together long term, isn't the key issue," he said.
Any deal would have to win both Justice Department and
Federal Communications Commission approval.
BellSouth "clearly would face the bigger regulatory
hurdle," Robert Litan, a former Justice Department
antitrust official now at the Brookings Institution in
Washington, said. "Sprint's management could defend
merging with MCI, despite the lower price, because of
the legal limbo the BellSouth offer would be in."
A Sprint deal would cap a phenomenal run by MCI
WorldCom's deal-making chief executive officer,
Bernard J. Ebbers.
The onetime basketball coach and motel operator had
cobbled together one of the biggest phone concerns in the
U.S., using a high-powered stock and ability to extract
cost savings from a string of more than 60 acquisitions.
Nearly two years ago to the day, Mr. Ebbers, 58 years
old, launched his bold bid for MCI Communications,
wresting control from British Telecommunications PLC
and ultimately winning what was at the time the
biggest-ever merger battle. Now, Mr. Ebbers appeared
close to snagging a prized possession from a company
that traces its roots to the dawn of the industrial age. "It
would be the largest of any telephone company in the
world," Eric Strumingher, an analyst with PaineWebber
Inc., said. "It's the most attractive set of assets that any
carrier has."
--John R. Wilke and Kathy Chen contributed to this
article.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Sprint Accepts $115 Bln Bid From MCI-Sources
By Robin Sidel
NEW YORK (Reuters) - Sprint Corp. (NYSE:FON - news) has accepted a takeover bid worth a
total of $115 billion from rival MCI WorldCom Inc. (Nasdaq:WCOM - news), setting the
world's largest-ever corporate merger, financial and industry sources familiar with the deal
said.
The bid is worth $76 per share, or $77 billion, for the shares representing only Westwood,
Kan.-based Sprint's core telephone long-distance business, the sources said.
The $115 billion price tag includes the equity portion of the long-distance business of Sprint,
the United States' No. 3 long-distance telephone company, as well as its PCS Group subsidiary,
which trades as a separate tracking stock, the sources said.
The deal, which is expected to be announced early Tuesday, came together after MCI
WorldCom, the second biggest U.S. long-distance telephone company, sweetened an earlier
offer following a rival bid from regional Bell BellSouth Corp., the sources said.
The deal is expected to undergo intense regulatory scrutiny.
The union of the two powerful companies will create a formidable competitor to industry leader
AT&T Corp. (NYSE:T - news) and would control about 32 percent of the U.S. long-distance
telephone market.
It is the latest blockbuster deal for MCI WorldCom boss Bernard Ebbers, who stunned the
telecommunications industry by engineering WorldCom's $40 billion acquisition of MCI, which
closed in September 1998.
WORLD'S PRICIEST MERGER
It is the priciest merger ever, eclipsing Exxon Corp.'s (NYSE:XON - news) planned $80 billion
purchase of rival Mobil Corp. (NYSE:MOB - news), and the $72 billion deal between Baby
Bell operators SBC Communications Inc. (NYSE:SBC - news) and Ameritech Corp.
(NYSE:AIT - news) Both of those deals are still undergoing regulatory scrutiny.
Clinton, Miss.-based MCI WorldCom also has agreed to pay a $5 billion premium to acquire
the PCS wireless unit, the sources said. The premium consists of additional shares of
WorldCom worth 0.1547 of a WorldCom share, or about $11, for each PCS share.
The Sprint board voted to accept the offer after a late Monday meeting to discuss the MCI
WorldCom and BellSouth bids.
A Sprint spokesman declined to comment. MCI WorldCom and BellSouth could not be reached
for comment.
The transaction also calls for the assumption of $14 billion in Sprint debt. Unlike an earlier
offer, it includes a mechanism called a ''collar'' to protect Sprint from volatility in MCI
WorldCom's stock price.
The management structure of the combined company could not immediately be determined. It
also was not clear if Sprint executives would be given seats on the MCI WorldCom board.
MCI WORLDCOM BEATS BELLSOUTH
MCI WorldCom had been negotiating a deal with Sprint for weeks, but the potential transaction
between the two became complicated over the weekend when Atlanta-based BellSouth stepped
into the fray with a cash and stock bid of its own.
One of the sources said BellSouth sweetened that offer Monday afternoon by adding a larger
cash component and raising the bid for the PCS unit when it became apparent that Sprint was
still favoring the MCI WorldCom offer.
The enhanced bid from BellSouth then triggered the higher bid from MCI WorldCom.
It was not immediately clear if BellSouth would now remove itself from the bidding contest.
Also unclear was the future role of Deutsche Telekom AG (NYSE:DT - news) and France
Telecom (NYSE:FTE - news), each of which hold a 10 percent stake in Sprint.
Monday, Wall Street analysts said an MCI WorldCom-Sprint combination would create a strong
strategic fit as it battled AT&T. Donaldson, Lufkin & Jenrette analyst Richard Klugman
estimated some $2 billion in cost savings could be wrung out of a potential union.
Shares of Sprint rose 3 to 60 in Monday trading on the New York Stock Exchange. MCI
WorldCom gained 1- to 71- on Nasdaq and BellSouth lost 2- to 42-11/16 on the NYSE. |
