July 5, 2000
Tech Center
Sprint Is Expected to End Deal
With WorldCom This Week
By ANITA RAGHAVAN and DEBORAH SOLOMON
Staff Reporters of THE WALL STREET JOURNAL
LONDON -- Sprint Corp. is expected to walk away from its merger agreement with WorldCom Inc. as early as this week, paving the way for Germany's Deutsche Telekom AG to launch an offer valued at more than $110 billion for Sprint in the next few weeks, people familiar with the situation say.
Deutsche Telekom still hasn't decided whether to pull the trigger on Sprint, these people caution, and the German phone company is still looking at another U.S. player, Qwest Communications International Inc. "There is still a question about whether they will do Sprint," says one person familiar with the situation. Even if Deutsche Telekom decides to pursue Sprint, this person says, a big sticking point will be price; Deutsche Telekom Chief Executive Ron Sommer isn't prepared to match the $76 a share WorldCom offered for Sprint; Mr. Sommer is doubtful that the German carrier will be able to reap the same cost savings from a merger as WorldCom hoped to get.
1WorldCom Adjusts Its Strategy for European Wireless Market (July 3)
Still, in recent days, Deutsche Telekom has been making preparations so that it could launch an offer for Sprint if the company terminates its $119 billion merger accord with WorldCom. A Deutsche Telekom offer would come on the heels of the Justice Department's move last month to file suit against WorldCom and Sprint, blocking their merger on antitrust grounds and effectively declaring the deal dead.
The formal annulment of the Sprint-WorldCom marriage could be a critical turning point because it would free up Sprint to hold merger negotiations with Deutsche Telekom and BellSouth Corp.
Both companies have expressed interest in Sprint but have not been able to hold merger talks with the U.S. carrier because of a strict "no-shop" clause in the Sprint-WorldCom pact that forces Sprint to pay WorldCom a $2.5 billion break-up fee if it holds merger talks with another party before its own merger agreement is dead.
Deutsche Telekom has been reluctant to launch a bid for Sprint up till now because it didn't want to risk landing in a legal quagmire, as it nearly did when it made a run for Qwest Communications International Inc. in March. U.S West Inc., which already had an iron-clad merger accord with Qwest, vowed to fight any effort to break up the deal and even threatened legal action. Deutsche Telekom does not want to run that same risk with Sprint.
In addition, Deutsche Telekom has been treading carefully because any acquisition of Sprint is likely to raise political and regulatory hurdles. Just this week, U.S. Senate leaders signaled their opposition to a takeover attempt by Deutsche Telekom, calling any bid by a foreign-government owned company contrary to U.S. law.
Deutsche Telekom responded yesterday, saying the opposition was based on a double standard and a misunderstanding of European telecommunications markets. A spokesman for Deutsche Telekom said that although the German government is still its majority shareholder, the government is moving to sell shares in the company and doesn't have a say in the company's day-to-day affairs. "It must be possible for us to make acquisitions in the U.S. with the same justification that U.S. companies make acquisitions in Germany," the spokesman said. He declined to comment on a possible Sprint purchase.
One advantage of an acquisition of Qwest is that it wouldn't raise the same kind of regulatory red flags as a Sprint purchase would, say people familiar with the situation. While Sprint is viewed as a telecommunications brand name, on the order of AT&T Corp. and MCI, Qwest is still regarded by regulators as an upstart.
Sprint is the No. 3 long distance carrier in the U.S. by a long shot, however, it offers Deutsche Telekom an Internet backbone and a much stronger presence among large corporate clients than a Qwest, for instance. The advantage of Qwest, though, is that it offers Deutsche Telekom a state-of-the-art network that could be critical as the company grows. Also, Qwest owns a 44% stake in KPN-Qwest, the joint venture created to build a high-speed data network, which could be very attractive to Deutsche.
One of the reasons Mr. Sommer is taking his time is that the Deutsche Chief Executive can't afford to let another acquisition slip out of his hands. In the past year, Deutsche Telekom has made failed runs at Telecom Italia SpA and Qwest, among others. With a war-chest of about $100 billion, Mr. Sommer has been very outspoken about his desire to make an acquisition, particularly in the important U.S. market.
His company is not the only one on the prowl. BellSouth Corp., the Atlanta-based regional phone provider, is also weighing making an offer for Sprint, and contacted the company last week, people close to the situation said. Sprint told BellSouth it could not discuss any deal until the WorldCom merger is officially terminated, these people said.
But BellSouth is likely to be back. The company, which tried to compete with WorldCom for Sprint last year by offering $50 billion in cash and $50 billion in stock, wants Sprint's wireless assets, Internet backbone and long-distance business.
But people close to the company say the Atlanta firm won't get into a bidding war with Deutsche Telekom. "BellSouth knows it will have a hard time winning if it tries to compete against Deutsche," said a person close to the situation.
One potential sticking point in a BellSouth bid for Sprint, however, is the pending wireless joint venture BellSouth is forming with SBC Communications. Regulators would almost surely make BellSouth divest its wireless assets in any area where its network overlaps with Sprint's. Since Sprint PCS is a national wireless player, BellSouth would be forced to shed most of its wireless assets.
One option BellSouth is said to be weighing is ending its joint venture with SBC and selling its wireless assets to the San Antonio-based Baby Bell.
But BellSouth may not get Sprint and if it doesn't, people close to the company said the Baby Bell is likely to make a bid for Qwest Communications International Inc. BellSouth already owns 10% of Qwest and would gain control of its nationwide fiber optic network with a successful bid. Qwest just completed its own merger with U S West.
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Hyperlinks in this Article:
(1) interactive.wsj.com
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