Bidding on MCI likely to heat up WorldCom, GTE expected to boost their offers

Telecommunications

October 27, 1997|By BLOOMBERG NEWS

WASHINGTON -- MCI Communications Corp. is likely to get a higher bid from WorldCom Inc. or GTE Corp. as the companies vie for the No. 2 U.S. long-distance phone provider to offer nationwide telephone, Internet and wireless services on one customer bill, analysts say.

"MCI is in play," said Jeffrey Kagan, president of Kagan Telecom Associates in Atlanta. "Nobody wants to leave the table without a fight."

With billions of dollars at stake, analysts aren't willing to estimate how much either company might raise its bid, although they said GTE has an advantage with its cash offer of $40 a share. WorldCom offered $41.50 a share in WorldCom stock.

Shares of Washington-based MCI closed Friday at $37.8281, down 40.63 cents.

"If I were an MCI shareholder, I would be more inclined to go with the GTE bid because it's cash," said Anthony Ferrugia, an analyst at A. G. Edwards. "I don't have to worry about WorldCom" stock, which has fallen almost 13 percent since that company made its offer.

British Telecommunications Plc, which started the bidding war with its friendly offer in November, isn't likely to up the ante, analysts said. In July, it lowered its offer by about 20 percent because of MCI's local-phone losses. The British company's bid is for about $36.72 a share in cash and stock for the 80 percent of MCI it doesn't already own.

BT is likely to vote in favor of GTE's bid.

"GTE would be a more welcome partner for BT than WorldCom," said James Dodd, telecommunications analyst at Dresdner Kleinwort Benson Securities. "BT would relate to [GTE] far better than the entrepreneurial spirits at WorldCom."

MCI management is expected to take several weeks to study the offers, leaving time for WorldCom and GTE to raise their bids, analysts said.

"I don't think MCI is ready to make a commitment to either one," said Tom Burnett, founder of Merger Insight in New York.

MCI management might not decide for months, analysts said.

Some haven't ruled out another bid for MCI.

"We should increasingly think of the people outside the deal, AT&T Corp. and Bell Atlantic," said Dodd. "They could choose to become involved. This is the lull before the storm."

Each offer is slightly different in value and fit for MCI. GTE and MCI declined to comment. WorldCom couldn't be reached for comment. British Telecom said its "advisers" were talking and declined to comment further.

WorldCom is the nation's No. 4 U.S. long-distance company. It also has local phone networks in many large cities that would allow MCI to save billions of dollars on the fees it pays the local phone companies each year to complete its calls. WorldCom would also help MCI's fledgling local phone operations, which are expected to lose up to $800 million in 1997.

GTE is the No. 3 U.S. local phone company. It would also boost MCI's local operations. With MCI, GTE would get 25 percent of the U.S. long-distance market. The combined company also would save millions of dollars in costs by combining the two operations and sending MCI's local traffic over GTE's network.

"If WorldCom raises the ante, then GTE will respond" with a higher offer," said Ferrugia.

Raghu Ram, an analyst at Wheat First Butcher Singer, said WorldCom's offer is best for MCI.

"WorldCom stock will outperform cash and GTE's stock over whatever time frame you choose," said Ram.

Ram said an increased bid might include cash from WorldCom. "If they do that, it's a no-brainer,' Ram said. "WorldCom will walk away with MCI."

Pub Date: 10/27/97

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