WorldCom offers MCI $34 billion Surprise takeover bid by long-distance giant would be U.S. record

'This deal will go through'

No. 4 firm disrupts British Telecom's yearlong bargaining


October 02, 1997|By Mark Guidera | Mark Guidera,SUN STAFF

WorldCom Inc., the nation's No. 4 long-distance telephone company, launched an unexpected $34.5 billion takeover bid yesterday for MCI Communications Corp. in its march to become one of the globe's dominant telecommunications companies.

If successful, the last-minute move for the Washington-based No. 2 long-distance provider would be the largest acquisition in U.S. history; it's about $8 billion more than RJR Nabisco's purchase by Kohlberg, Kravis Roberts & Co. in 1989.

The deal could create a telephone giant poised to challenge AT&T Corp.'s historic reign as the world's dominant phone company, analysts said.

"WorldCom wants to be the Microsoft of the telephone business," said analyst Jeffrey Kagan at Kagan Telecom Assoc. in Atlanta.

AT&T, with $54 billion in annual revenue, is the world's largest telecommunications company. A WorldCom-MCI partnership would have combined revenue of about $30 billion.

A confident Bernard J. Ebbers, WorldCom's chief executive officer, told reporters at a press conference yesterday: "Absolutely, this deal will go through."

The deal, analysts said, is yet another example of consolidation triggered by a federal telecommunications law passed last year. The industry is fast reorganizing into a number of giant companies, each offering a one-stop smorgasbord of communications services to business and consumers.

WorldCom's $41.50-per-share bid represents a 41 percent premium over MCI's closing stock price Tuesday. It is also more than WorldCom's $31.2 billion market capitalization. Shares in the Jackson, Miss. company closed yesterday at $34.375, down $1.

Wall Street analysts doubt the surprise stock and debt offer will set off a bidding war with MCI's other suitor, British Telecommunications PLC of London.

The WorldCom overture is almost double a revised $18 billion -- $32.73 a share -- takeover bid British Telecom made in August for MCI.

British Telecom lowered an earlier $24 billion offer for the 80 percent of MCI it doesn't already own after a clamor from shareholders. British Telecom shareholders were upset with the offer's price in the face of MCI's losses in its local business service and slowing long-distance growth.

Some British Telecom shareholders yesterday applauded the chances that deal might be scuttled by WorldCom. British Telecom's American depositary receipts rose $5.875 to close yesterday at $72.50.

Analysts were abuzz yesterday as to why WorldCom waited until the last hour to counter British Telecom's offer.

"It is a bit puzzling," said Dwight Allen, a Washington-based telecommunications consultant with Deloitte & Touche Consulting Group. "The deal between MCI and BT is all set to go. It's just not finalized."

Ebbers said WorldCom, which last year lost $2.2 billion on $4.5 billion in revenue, decided to make a bid for MCI only after British Telecom had lowered its offer to a point at which WorldCom believed it could compete.

"This is a superior offer. It's a higher price, higher premium and higher-performing stock," he said.

That bravado aside, Ebbers and WorldCom may face a huge hurdle convincing MCI's management that WorldCom is a better partner, analysts said.

The reason: MCI and British Telecom have been working for a year to structure a marriage and business strategy. Scuttling such a deal now may appear foolish.

But, consultant Allen said, "You could make a case now for MCI to go in either direction, depending on objectives. If MCI wants to partner with one of the long-established players in the industry it's BT. If it wants to partner with a pioneer and groundbreaker like itself, it's WorldCom."

Analysts said WorldCom is looking to marry its savvy for marketing long-distance service to businesses with MCI's strength in marketing to consumers.

MCI, which last year netted $1.2 billion on $18.4 billion in revenue, yesterday was tight-lipped on the offer. The company issued a terse statement that it had received the offer and that its board of directors would meet to review "all issues and options."

Shares in MCI closed yesterday at $35.25, up $5.875.

Ebbers said WorldCom would launch a hostile takeover bid for MCI if its management turns down the offer. An MCI-WorldCom partnership, he said, could "realize far greater synergies and savings" than an MCI-British Telecom partnership.

Scott D. Sullivan, WorldCom's chief financial officer, estimated yesterday that a partnership with MCI would result in $2.5 billion in savings in the first full year of combined operations, expected to be in 1999 if the deal goes through.

Savings would grow to more than $5 billion by 2002, Sullivan estimated. Those savings would come in advertising, networking, and corporate overhead, he said.

Ebbers sought to assure MCI employees that cost savings wouldn't come via job cuts.

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