MCI & Sprint-$115 Billion WSJ>
October 5, 1999
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. |
