Upstart wins battle for MCI $37 billion offer from WorldCom beats out GTE's bid

A coup for Ebbers

Deal still needs OKs by the regulators as well as shareholders

November 11, 1997|By Mark Ribbing | Mark Ribbing,SUN STAFF

After more than a month of courtship, telecommunications giants MCI Communications Corp. and WorldCom Inc. announced yesterday that they have agreed to merge. If the $37 billion merger is approved by shareholders and regulators, it will be the largest in U.S. corporate history.

"We are excited by the remarkable opportunities this combination makes possible for both companies," WorldCom President and Chief Executive Officer Bernard J. Ebbers said at a Manhattan news conference yesterday after the deal was announced.

The proposed merger represents the biggest coup yet for Ebbers, whose Jackson, Miss.-based company has rocketed from obscurity with a series of bold acquisitions.

The new company, which would be called MCI WorldCom, would operate in 102 local markets and control 25 pecent of the long-distance market, posing an even stronger challenge to the perennial leader in the long-distance sector, AT&T Corp. MCI already is the nation's No. 2 long-distance company, and WorldCom is fourth.

Indeed, the merged entity would control a quarter of the total American communications market, with projected 1998 revenue of $30 billion.

Ebbers would be chief executive of the merged company, while MCI Chairman Bert C. Roberts Jr. would retain that title.

"This is going to be a great company," said Roberts. "The exchange price is a ringing tribute to the success that MCI has had over our 30 years of existence."

WorldCom and Washington-based MCI said their boards of directors had each given the proposed merger unanimous support. They anticipate that the merger will be finalized within six to nine months.

WorldCom would also assume $5 billion in MCI debt.

The merger agreement calls for most MCI shareholders, excluding British Telecom, to receive $51 worth of WorldCom common stock for each MCI share. British Telecom, which currently holds 20 percent of MCI, would receive its $51 a share -- or $7 billion -- in cash. British Telecom has consented to the merger, and has agreed not to proceed with its own merger bid for MCI.

The announcement drove MCI stock up $4.625 to $41.50 while WorldCom shares fell $2.125 to $31. British Telecom PLC's American depositary receipts rose $2.50 to $79.50.

An MCI spokesperson said the merger was not expected to result in any reduction in the company's worldwide work force of 55,000. MCI has 3,000 employees in Maryland at seven locations, including a business sales office in Baltimore and a large national telemarketing center in Hunt Valley.

WorldCom employs 13,000.

The competition for MCI's affections has been dramatic at times. In November 1996, British Telecom offered $36 per share in stock and cash for the 80 percent of MCI that it did not own. This August, however, BT cut its offer to $34 per share after MCI

revealed that it was running unexpectedly high losses as a result of its entry into the local phone market.

Then, on Oct. 1, WorldCom made its bid. The Magnolia State upstart offered $41.50 per share in stock. BT faded into the background, and WorldCom appeared to have MCI all to itself. On Oct. 15, however, GTE Corp. offered $40 per share -- in cold cash.

GTE's strong competing bid seems to explain why WorldCom increased its offer to $51 per share. With the stock market in tumult, WorldCom had to sweeten its stock offering in order to counter the guaranteed value of GTE's all-cash offer.

GTE stock rose $1.25 to $44.875 yesterday.

Most analysts have regarded WorldCom as a better fit for MCI. MCI and WorldCom are both strong in the corporate long-distance market, and both are eager to break into local telephone service; a merger would allow both companies to save on capital investment.

In addition, both companies are interested in developing a dominant Internet presence. WorldCom's acquisition binge has largely been fueled by a desire to establish control of so-called Internet backbones, the main expressways for Net access.

"They'll be the largest Internet player when all is said and done," Stephen Shook, a telecommunications analyst for Interstate/Johnson Lane in Charlotte, N.C., said of the proposed new company.

Finally, MCI and WorldCom share a common outlook. In contrast to the older, stodgier GTE, WorldCom shares with MCI a swashbuckling, entrepreneurial culture and a willingness to take bigger competitors. After all, it was MCI that initially challenged the hegemony of AT&T.

"MCI has made the best possible choice," said Roberts. "The two companies have complementary strengths.

"Most important, if you look at the heritage of the two companies, they both come from entrepreneurial roots. They both have had to win every customer."

Shook said of WorldCom and MCI, "They're very similar. They come from an aggressive heritage. They've done well in competitive environments."

GTE had no comment on the merger announcement, but the Stamford, Conn., telecommunications company has not yet formally abandoned its quest for MCI.

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