Andrew --
Yours is the finest summary of NN's status within the industry I've seen. Apropos of the MCI contract, there's light at the end of the tunnel according to today's LA Times. First, the status of MCI/WCOM as of yesterday:
interactive.wsj.com@4.cgi?mfmuse/text/wsjie/data/SB897604841460115500.djm/&NVP=template=news-search.tmpl&form=news-search.html&dbname=wsjie/index&dbname=autowire/index&words=mci&any-all=AND&maxitems=30&HI=30
<<<
The Wall Street Journal Interactive Edition -- June 12, 1998
MCI Offers to Sell More Assets
To Speed WorldCom Acquisition
By JARED SANDBERG and JOHN R. WILKE
Staff Reporters of THE WALL STREET JOURNAL
Senior officials of MCI Communications Corp., led by Chairman Bert C. Roberts Jr., met with Justice Department antitrust chief Joel Klein and offered to sell additional MCI Internet assets as a way of accelerating U.S. approval of the company's $37 billion purchase by WorldCom Inc.
Senior Justice Department officials told Mr. Roberts that they would probably approve the merger if the companies committed to sell either MCI's or WorldCom's entire Internet businesses, according to lawyers close to the talks.
While executives in MCI's camp have suggested that the Justice Department might approve the merger prior to the divestiture of one of the two Internet businesses, the lawyers said no such assurance was made at the meeting late Wednesday. Instead, Justice Department officials indicated that MCI would likely need a firm agreement to sell all the assets before the merger would be cleared, the lawyers added.
Complications With C&W
The purchase has become bogged down in a contentious regulatory review centering on whether the combined MCI-WorldCom could come to dominate major arteries of the Internet. In a further complication, Cable & Wireless PLC, which recently agreed to purchase at least some of MCI's Internet assets, filed a lawsuit in federal court in Washington aimed at binding MCI to its original pact. C&W said MCI was preparing to shop some or all of its Internet assets elsewhere, a potential violation of the company's prior accord with C&W.
Selling additional assets could help MCI and WorldCom appease regulators, particularly those in the European Union who have steadfastly pushed for a divestiture of assets as a way to avoid any overlap in MCI's and WorldCom's Internet businesses. MCI and C&W signed their accord two weeks ago, but MCI failed to convince European regulators that selling its Internet-network assets was enough to constitute a total divestiture of its Internet business. Next week, an EU advisory panel is expected to formulate an opinion on the terms of the divestiture in preparation for a July 15 deadline for the EU to make a decision on the acquisition.
But the sale of additional Internet assets raises questions, chief among them: Who would get the assets? Would a sale change the value of the underlying MCI-WorldCom deal? People familiar with the discussions said that while C&W is still considered the leading candidate to buy the remaining MCI assets, MCI could try to sell to another buyer if it can fetch a higher price. C&W's suit is designed to make sure the company remains at the top of MCI's short list of potential bidders.
Wednesday, several senior C&W executives traveled from London to meet with MCI in Washington. The two companies sat down to discuss a revised plan for divestiture "acceptable to regulators in Europe and Washington," one person familiar with the talks said.
Little Potential Penalty for MCI
Despite C&W's lawsuit and a provision in the agreement that requires MCI not to shop its assets elsewhere, the penalty for MCI doing so is fairly light. If MCI backs out of the agreement, it would have to pay C&W $25 million, a sum that could easily be recovered from another, higher bid. And MCI seems willing to explore all options, particularly if it might benefit its shareholders, said one person close to MCI.
Some executives suggested that C&W wasn't doing enough to help MCI and WorldCom appease regulators, who are pushing to form an entity powerful enough to compete with the combination once a divestiture is completed. A spokesman for C&W would only say that "the only issue that regulators in Europe and the U.S. have raised with us is how to deal with the overlap between UUNet's [a WorldCom unit] and MCI's Internet business."
Justice Department officials have indicated that they wouldn't agree to a sale of Internet assets to one of the existing major players such as GTE Corp., but might approve a sale to AT&T Corp., lawyers close to the discussions said. While AT&T's chairman, C. Michael Armstrong, recently indicated that AT&T might be interested in bidding for the MCI asset, a handoff to AT&T isn't likely because "they're the sworn enemy of MCI," said one executive close to MCI. AT&T doesn't comment on its acquisition plans.
Possible Suitors
Rather, MCI and WorldCom seem prepared to solicit bids from other companies. Potential suitors that originally topped the list include Williams Cos. and IXC Communications Inc., as well as British Telecommunications PLC. PSINet Inc. also has expressed interest in the assets.
Any sale, however, would probably include more than MCI offered to C&W. Soon after the announcement of that deal, the EU solicited comments from MCI-WorldCom competitors on whether the proposed sale would improve the industry's competitive landscape. The rivals were said to have replied that MCI wasn't giving up enough. They noted that the deal with C&W didn't include MCI's lucrative corporate accounts and personnel, including Internet engineers.
Wednesday, one executive close to the discussions with regulators said MCI and WorldCom are "going to have to make some changes" in their divestiture plans. Among the new assets to be given up: several thousand corporate Internet customers, as well as more than 200,000 consumer Internet users.
WorldCom won't budge on giving up its own Internet business, UUNet Technologies Inc., which is by far the stronger player of the two companies' Internet operations.
If the merger doesn't close by Dec. 31 or if WorldCom chooses to walk away from the deal, it would have to pay MCI a termination fee of $1.635 billion, as well as $250 million to British Telecom. BT, which still owns 20% of MCI, but lost out to WorldCom in the bidding war for the Washington-based carrier last year, also is waiting for a $7 billion payment for its 20% stake from WorldCom once it completes its purchase.
Mr. Klein and his staff have talked regularly with MCI-WorldCom, but he has allowed the Europeans to take the lead in the antitrust review, primarily because of the EU's tighter deadline to reach a decision. Lawyers said the two regulatory bodies are in agreement that a divestiture has to take place before the merger can be cleared, making some adjustment of the deal inevitable. While the European regulators couldn't block the merger of two U.S. companies, they could effectively block it by depriving them of operational licenses in a critical market.>>>>
Status today:
latimes.com;
<<<
Saturday, June 13, 1998
Judge clears way for bigger MCI asset sale
By AARON PRESSMAN, Reuters
WASHINGTON--A Federal judge has opened the door for MCI Communications Corp. to sell the bulk of its Internet businesses next week to the highest bidder despite a court challenge, a key move to help MCI complete its planned merger with Worldcom Inc.
U.S. District Court Judge Thomas Penfield Jackson Friday rejected a request from Cable & Wireless Plc, which last month agreed to buy MCI's wholesale Internet business for $625 million, preventing MCI from offering an expanded deal to any other company for 10 days.
Antitrust regulators in the United States and Europe have held up the $37 billion MCI-WorldCom deal because of fears the merged company would have too much control of the Internet.
MCI's sale of its wholesale Internet business to Cable & Wireless was intended to mollify those concerns, but regulators subsequently said the divestiture was inadequate and MCI is now preparing to divest more Internet services.
Cable & Wireless filed suit against MCI Wednesday after learning of MCI's plan to offer a revised package of assets, including those it bought to other bidders. Cable & Wireless charged that, under the original sales agreement, MCI was obligated to first offer it a chance to buy any revised package.
But during a 40-minute hearing, Judge Jackson repeatedly asked Cable & Wireless attorney Charles Lettow why MCI could not invoke a simple $25 million termination provision in the earlier sales contract.
"Why could not MCI decide the transaction is void and pay the $25 million?" Jackson asked. "It seems that's an option open to them."
Lettow said that other provisions of the contract required MCI to first negotiate in "good faith" with Cable & Wireless.
Asked for evidence that MCI would not negotiate in good faith, Lettow said "because they told us they wouldn't."
MCI attorney Phillip Cohan told the judge that regulators have not disclosed specifically what assets needed to be divested yet. If MCI was ordered to negotiate a revised sale with Cable & Wireless it would be "toward an objective that is totally unknown."
In the original deal with Cable & Wireless, MCI sold its Internet backbone service which provides Internet transmission facilities to other Internet service providers. But MCI did not divest its retail Internet services that provide net access to corporate and residential customers.
People familiar with MCI's plans have said MCI now planned to divest the retail services as well. But WorldCom is not expected to put its fast-growing UUNet unit on the block.
Companies such as British Telecommunications Plc, IXC Communications Inc. and PSINet Inc. are seen as interested buyers of the retail assets, analyts said. >>>
Other MCI-related news:
<<<
Internet Subsidy Survives
WASHINGTON (Reuters) - The Federal Communications Commission has voted to maintain a controversial subsidy for connecting schools and libraries to the Internet. The FCC decided to collect $325 million per quarter, mostly from long distance telephone companies, for the program known as the education rate. That will raise $1.3 billion for 1998, less than the $2 billion requested this year by more than 30,000 schools and libraries seeking discounted Internet access. But the FCC's action should allow long distance carriers AT&T and MCI to reduce surcharges they had intended to charge customers to pay for the program as well as other long-standing subsidies that support basic phone service in rural and low-income areas. >>>> |
