Dow Hones update: MCI Seen Near Deal That Clears Way For WorldCom Merger
July 14, 1998 11:21 AM
By Shawn Young
NEW YORK (Dow Jones)--MCI Communications
Corp. (MCIC) has agreed to sell its Internet business to
Britain's Cable & Wireless PLC (CWP) for $1.5 billion
to $2 billion, thus clearing the way for regulatory
approval of its proposed merger with WorldCom Inc.
(WCOM), sources close to the matter said.
MCI, of Washington, D.C., isn't expected to announce
the sale Tuesday, but a statement is very likely this
week, possibly as soon as Wednesday, industry sources
said.
The sale would remove the last substantive obstacle to
U.S. Department of Justice approval of WorldCom's
$37 billion plan to buy MCI, analysts said.
Justice Department approval could come within minutes
of the sale announcement, said Credit Suisse First
Boston analyst Frank Governali. Approvals from the
Federal Communications Commission and a few states
are expected shortly thereafter.
"From the standpoint for practical obstacles remaining,
there are none," Governali said, adding that the
remaining approvals could take two to four weeks.
MCI and WorldCom, based in Jackson Miss., continue
to expect to close their merger this summer, MCI
spokesman Jim Monroe said.
"All I can say is we look forward to the Justice
Department's decision, and we expect to announce a
buyer soon," Monroe said. He declined to comment on
reports that MCI had made a deal with Cable &
Wireless.
A Cable & Wireless spokesman in London also
declined to comment on reports of a deal, but said, "We
are still talking to MCI."
The Justice Department didn't immediately return a call
seeking comment.
Price Reflects Profits In Internet Retail
Regulators in the U.S and Europe insisted that MCI sell
its Internet business, so as to prevent the post-merger
company from having too much power over the Internet.
Regulators rejected MCI's earlier proposal to sell only
the wholesale segment of the business, also to Cable &
Wireless, for $625 million.
That deal, which included about 1,300 wholesale
contracts along with routing and switching equipment,
depended on regulators saying it resolved their antitrust
concerns.
When European Commission antitrust officials rejected
the initial agreement, MCI began to seek a buyer for its
entire Internet operation, which includes thousands of
busines and residential retail customers. Cable &
Wireless tried suing to keep MCI from seeking other
buyers, but it quickly dropped the suit.
Cable & Wireless had been regarded as a likely winner
all along. Other bidders for MCI's Internet package
reportedly included British Telecommunications PLC
(BTY), PSINet Inc. (PSIX), IXC Communications Inc.
(IIXC), Williams Cos. (WMB) and Qwest
Communications International Inc. (QWST).
The price of the sale appears to be near the upper end
of the $1 billion to $2 billion range analysts had
expected.
The difference between that price and the initial $625
million partial offer "reflects consideration for MCI's
retail customer base," said Goldman Sachs & Co.
analyst Richard Klugman.
The price reflects the profitablility of MCI's retail
Internet business, said Governali of Credit Suisse First
Boston.
"They did keep the more valuable asset," Klugman said,
referring to WorldCom's Internet unit, UUNet
Technologies Inc. Analysts said they do not expect the
sale to hurt the combined company, which should report
torrid Internet growth.
For Cable & Wireless, which emphasizes global
operations, the deal is a plus, said Brian Adamik of
Yankee Group, a Boston consulting firm.
"Strategically it makes sense," he said. "It gives them a
very strong presence here."
With regulatory concerns largely resolved, MCI and
WorldCom seem poised to offer a powerful
combination of local, long-distance and data services,
especially to business, analysts said. The company, the
nation's second-largest long-distance carrier, will be a
formidable competitor to the largest carrier, AT&T
Corp. (T), and will also challenge the Baby Bells for
local business customers.
A Justice Department spokesman declined to comment
on the progress of the department's review or say when
an announcement might be expected.
-Shawn Young; 201-938-5248
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