LDDS buying WilTel for $2.5 billion

August 23, 1994|By New York Times News Service

DALLAS -- LDDS Communications Inc., striving to turn the Big Three of long-distance telephone service into the Big Four, agreed yesterday to buy the Williams Cos.' national fiber optic network for $2.5 billion in cash.

In acquiring Wiltel, the Williams telecommunications unit, LDDS would join AT&T, MCI Communications and Sprint in having its own network. Owning a network instead of leasing capacity will cut LDDS' costs and allow it to reach for major corporate customers, analysts said.

"In order to position themselves to be a full-fledged No. 4 competitor, they had to do a Wiltel type of deal." said Stuart Conrad, an analyst at C. J. Lawrence/Deutsche Bank Securities.

Just three weeks ago, LDDS bounded into the international long-distance market with its agreement to buy IDB Communications Group Inc. for $900 million in stock and the assumption of debt.

LDDS now has about 3 percent of the $64 billion U.S. long-distance market. The extra 2 percentage points gained by the two acquisitions would still leave LDDS well behind AT&T's 59 percent of the market, MCI's 19 percent and Sprint's 10 percent.

The deal ends an ardent, sometimes fractious, four-month pursuit of Wiltel by Bernard J. Ebbers, the chief executive of LDDS.

Mr. Ebbers initially offered Keith E. Bailey, his Williams counterpart, $2 billion in person on April 6. With no response from the company a month later, Mr. Ebbers increased the pressure by publicizing his offer.

The Williams board, loath to part with a business growing more rapidly than its larger natural gas divisions, quickly rejected it.

But even as Williams executives loudly proclaimed their intent to stay in the telecommunications business, the board told them to keep talking with LDDS.

Williams plans to use as much as $800 million of the sale proceeds to buy back its stock over the next 12 months and the rest for investments in the energy field. After taxes and other costs, Williams expects to receive $1.6 billion, including a gain of at least $950 million.

These amounts represent the returns on a business Williams began only in 1986 by threading fiber optic cables through its abandoned natural gas pipelines and along other pipelines still in use.

Shares of Williams, having risen from the low 20s since April in anticipation of the Wiltel sale, fell 25 cents Monday, to $31.25, on the New York Stock Exchange. Shares of LDDS fell 75 cents, to $23.0625, on news that had been expected.

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