March 12, 1998 Shareholders Show Near Unanimity For WorldCom's Acquisition of MCI
By STEPHANIE N. MEHTA
Staff Reporter of THE WALL STREET JOURNAL
Shareholders Wednesday heartily endorsed WorldCom Inc.'s proposed
$37 billion acquisition of MCI Communications Corp., even as regulators
increased their scrutiny of the merger.
At special meetings in South Sioux City, Neb., and Jackson, Miss., both
companies' stockholders displayed nearly unanimous support for the deal,
which would create an international telecommunications behemoth with $32
billion in annual revenue, 22 million customers and extensive data networks.
Indeed, word that the Justice Department is widening its investigation of the
proposed transaction did little to damp investor enthusiasm. "I think
shareholders see the opportunity for the companies' management to work
together to add value," said Stephanie Comfort, an analyst with Morgan
Stanley, Dean Witter, Discover & Co. "I think investors really see the
power of these two companies as one."
In Nasdaq Stock Market trading Wednesday,
WorldCom closed at $38, up 12.5 cents, and
MCI closed at $45.875, down 12.5 cents.
Officials of MCI, based in Washington, and of
WorldCom, based in Jackson, expressed
confidence Wednesday that the deal would
close in mid-1998, as expected. Early in the
day, the companies unveiled the names of the
directors selected to sit on the combined
entity's 17-member board.
Outside board members include two new faces:
Stephen M. Case, chairman of America Online
Inc., which sold its ANS Communications unit
to WorldCom; and James C. Allen, former
chief executive officer of Brooks Fiber
Properties, a local carrier recently acquired by
WorldCom.
Counsel From Acquired Firms
Both new directors underscore WorldCom chief Bernard J. Ebbers's
fondness for seeking counsel from the leaders of the companies he buys. Six
additional outside directors come from the current WorldCom board;
another three outsiders now sit on MCI's board.
"It's a youthful, bright, proactive board," said Linda Meltzer, an analyst with
UBS Securities. "It's actually a testimony to Bernie Ebbers to have that kind
of brain power in one room."
The combined company's top six executives will also have seats on the
board. WorldCom officers joining the board are Mr. Ebbers, who will be
president and chief executive of the combined entity; current operations
chief John Sidgmore, who will become president and chief executive officer
of MCI WorldCom's Internet-technology business; and Scott D. Sullivan,
WorldCom's chief financial officer, who also will assume that role in the
combined company.
From MCI come Chairman Bert C. Roberts, who will be chairman of the
new entity's board; Chief Executive Gerald H. Taylor, who will become
president of the combined company's international business; and President
Timothy F. Price, who will become president of MCI WorldCom's U.S.
communications subsidiary.
"Looking at the names, it's definitely a good mix of specialties and a diverse
mix of people," said Ms. Comfort, the Morgan Stanley analyst. "And it's not
heavily industry-focused, which is always refreshing on boards."
Regulators' Concerns
But before the new board members can take their seats, WorldCom and
MCI officials will have to answer questions from antitrust regulators over
whether the combined company would dominate the Internet services
industry. Rivals fear that the new entity, powered by its powerful UUNet
Technologies unit, would come to control a huge chunk of the Internet
backbone. The companies in recent days have said the merged company
would grab about 20% of Internet revenues. European Union regulators
also are looking at the proposed pact with many of the same concerns.
WorldCom has been aggressively building facilities in Europe.
Closer to home, unions and consumer groups have raised questions about
the deal's potential impact on jobs and telephone rates. While MCI has a
strong base of residential customers, WorldCom has focused almost entirely
on business customers, raising consumer concerns that the powerful new
company will do little to bring new competition to the residential local and
long-distance telephone-services arena.
But consumer groups have had little success stopping other major mergers
in the telecommunications industry. Despite similar complaints, federal
regulators last year cleared Bell Atlantic Corp.'s acquisition of Nynex Corp.
and SBC Communications Inc.'s purchase of Pacific Telesis Group.
In fact, Wall Street analysts seem to share MCI and WorldCom executives'
confidence that the transaction ultimately will pass regulatory muster. Ms.
Meltzer, the UBS analyst, said the rapid growth of the Internet and demand
for new and better services suggests that the industry has plenty of room for
competitors. "We don't see anything that dramatically affects the potential of
this deal closing in the midsummer time frame," she said. |
