In a breathtaking attempt to undercut a huge rival and to create a unique position for itself as first-tier player in the telephone and data networking businesses, WorldCom Inc. today announced a bid for MCI Communications Inc. that would grab the US long-distance carrier out of the hands of its intended new partner, British Telecom.
The US$41.50 a share offer - a 40 percent add-on to the value of MCI's stock from its Tuesday closing price of $29.375, to be paid in shares of WorldCom common stock - would total $30 billion. British Telecom, which owns 20 percent of MCI and has tried for more than a year to engineer a merger with the American company, has gained preliminary stockholder approval for a deal worth $18 billion.
BT and MCI have already gained approval from the Federal Communications Commission and European Union to merge, and final shareholder approval was expected before the end of the year. In its effort to put the BT-MCI train off the tracks, WorldCom filed suit in Delaware to block the merger until MCI stockholders get a chance to weigh the new offer.
MCI shares gained 20 percent, to $35.25, in very heavy trading. BT also traded up, gaining $5.375 to $72. WorldCom jumped, then turned down $1.
MCI and BT withheld comment on the proposal. AT&T issued a press release sniffing that although it was watching the proceedings with interest, "WorldCom's latest play doesn't affect our strategy in the least."
Analysts' first comments focused mostly on the rich earnings potential of the merger - WorldCom estimated a 22 percent addition in the first year and said "synergies" realized in the deal would amount to $2.5 billion in the first year of acquisition - and the big premium being offered to MCI shareholders to woo them away from BT's camp. Combined, WorldCom and MCI would have $27 billion in revenue in 1997.
The deal will "certainly put WorldCom on the map," said Bill Meehan, chief investment strategist for Cantor Fitzgerald. "It may be a little pricey, but they are certainly smart operators and they've done a hell of a job building a telecommunications company."
"It is the right kind of thing at the right time," said Scott Wright, an Argus Research analyst. "One entrepreneurial culture is getting together with another entrepreneurial culture, which promises to be a much happier marriage than the BT marriage."
In praising his own handiwork, Bernard Ebbers, president of Jackson, Mississippi-based WorldCom, used terms like "compelling" and "superior" to describe the company's overture to MCI stockholders. But he also touched on one reason that the Federal Communications Commission might be moved to give its blessing to the merger: In the 19 months since passage of the Telecommunications Act of 1996, the agency has gotten into thornier and thornier tangles with telcos over starting competition in both local and long-distance markets.
"This combination helps fulfill the intent of the Telecommunications Act by enhancing competition," Ebbers said in his statement. "Together, WorldCom and MCI will have the capital, marketing abilities, and state-of-the-art network to compete more effectively against the incumbent carriers, domestically and abroad.
WorldCom has already spent years augmenting its long-distance business, building a presence in local phone markets, mostly to service business clients. MCI, a much more consumer-oriented long-distance power, has found the job of going local to be an expensive one. MCI's unanticipated expenses this year for establishing local services - $800 million instead of the expected $400 million - shook the deal with BT and prompted the British company to reduce its offer a full 25 percent.
As WorldCom took command of the day's financial headlines with the play for MCI, it announced another deal that demonstrates its ardent pursuit of a stronger position in local markets: the acquisition of Brooks Fiber Properties Inc. That deal, worth $2.4 billion, will expand WorldCom's local presence from 52 to 86 markets.
In the background, though, is what in today's market is the opportunity for the ultimate telecommunications synergy.
WorldCom, which last year acquired data-network power UUNET as part of its merger with MFS Communications, made a bid to become pre-eminent in the data space. In a deal brokered with America Online, WorldCom acquired CompuServe, turned over the membership to AOL, and retained the service's highly regarded backbone facilities.
Getting hold of MCI's highly advanced and far-flung data network holdings means that within little more than a year, WorldCom has gained a place as owner of one of the best networks on the planet.
To become reality, the WorldCom-MCI merger must cross several hurdles. Among them, it must receive FCC anti-trust approval, MCI stockholders must void the BT-MCI pact, and a majority of MCI shares must be offered to WorldCom for sale.
BT and MCI have already gained approval from the FCC and European Union to merge, and final shareholder approval was expected before the end of the year. In its effort to put the BT-MCI train off the tracks, WorldCom filed suit in Delaware to block the merger until MCI stockholders get a chance to weigh the new offer.
Dan Brekke, Tim Barkow, and Craig Bicknell of the Wired News staff, correspondent Chris Oakes, and Reuters contributed to this report.
