WorldCom Seeks Remaining Interest in Digex
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WorldCom, Inc., which is now doing business as MCI, filed a motion with the U.S. Bankruptcy Court for the Southern District of New York Thursday seeking authorization to purchase for approximately $18 million for all outstanding publicly traded common stock of Web services company Digex.
MCI already owns most of the Laurel, Md.-based Digex after a bruising battle for control in 2001 that cost the company $4.97 billion. The acquisition was later the focus of a critical report on the management practices of WorldCom.
Subject to the Bankruptcy Court's approval, MCI intends to make an offer to acquire all of the outstanding shares of Digex's publicly traded common stock. If MCI acquires approximately 75 percent of the outstanding shares of publicly traded common stock, MCI would then purchase all of the outstanding Digex preferred stock pursuant to an agreement with the owners of this stock.
Digex would then merge with an MCI subsidiary. The transactions have been approved by MCI's Board of Directors.
According to an MCI statement, the purchase will allow MCI to expand its managed services portfolio -- a key strategic objective of its bankruptcy plan of reorganization -- while assuring Digex and MCI customers that MCI is committed to supporting their hosting services.
In September of 2000, WorldCom acquired Intermedia, which then owned 55 percent of Digex and controlled 94 percent of the company, Digex's minority stockholders sued to either enjoin the merger or invalidate the approval of the deal by the Digex board of directors. The suit claimed Intermedia's directors acted improperly by waiving the legal rights of Digex's minority stockholders.
The minority stockholders also felt the proposed merger gave WorldCom control of Digex, which was WorldCom's primary goal, at a bargain price. The suit was scheduled to go to trial in May of 2001.
However, WorldCom and Intermedia proposed a settlement to the suit and revised the merger terms with each share of Intermedia bring exchanged for one share of WorldCom. Under the original proposal, Intermedia would have swapped 1.2 shares for each share of WorldCom stock.
Concurrent with the reduction in the WorldCom/Intermedia exchange ratio, a settlement fund of $165 million in WorldCom common stock, based upon WorldCom stock's trading price for a period preceding the WorldCom/Intermedia merger, was created for Digex stockholders (other than Intermedia) and plaintiffs' counsel fees. Net of plaintiffs' counsel fees, one-half of the settlement fund was distributed to holders of Digex Class A common stock as of Sept. 1, 2000.
In addition, after the completion of the Intermedia merger, WorldCom provided Digex funding for its 2001 and 2002 business plans as approved by the Digex and WorldCom boards of directors.