MCI reportedly is in talks to buy nationwide cell phone firm, Nextel

Target company's red ink could lower earnings

April 07, 1999|By BLOOMBERG NEWS

McLEAN, Va. -- MCI WorldCom Inc., the No. 2 U.S. long-distance phone company, is in talks to buy nationwide wireless phone company Nextel Communications Inc., people familiar with the companies said.

Nextel has hired Morgan Stanley Dean Witter & Co. and Lazard Freres & Co. to advise it in the discussions. Salomon Smith Barney Inc. is advising WorldCom. Nextel shares have surged about 22 percent over the past three weeks amid takeover speculation, raising its market value to almost $11.5 billion.

Bernard Ebbers, MCI WorldCom's chief executive who has completed 60 acquisitions in the 1990s, could use Nextel's wireless network to reach consumers and business customers, who are increasingly using wireless phones.

That could come at a hefty price, as a purchase of unprofitable Nextel would lower MCI WorldCom's future profit and could result in the assumption of $7.7 billion in long-term debt.

"It's an expensive nice-to-have, but not a strategic necessity at this time," said Daniel Zito, an analyst at Legg Mason Wood Walker Inc., who has a "buy" rating on MCI WorldCom. "Dilution is an issue. There is no way around that."

A sale of Nextel would require the approval of Craig McCaw, who along with his family own about 20 percent of Nextel. It would mark the second time McCaw has sold a wireless company. He built McCaw Cellular into the largest U.S. cellular company before selling it to AT&T Corp. several years ago.

Officials at both companies and at Morgan Stanley declined to comment.

Pub Date: 4/07/99

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