A major hurdle for the merger between WorldCom
and Intermedia Communications, Inc.
was formally cleared in a Delaware court Monday afternoon when Digex, Inc.
announced a definitive Stipulation of Settlement in the consolidated class action suit that had sought to block the merger.
The court has entered its order directing that notice of the settlement be sent to members of the class and has scheduled a settlement hearing to be held on April 6 at 2 p.m. in the Delaware Court of Chancery in Wilmington, Del. The final settlement of the suit is subject to the satisfaction of certain conditions as well as final court approval.
The court action follows the Feb. 16 proposal by WorldCom and Intermedia to resolve the suit.
Shortly after WorldCom’s September agreement to acquire Intermedia, which owns 55 percent of Digex and controls 94 percent of the Laurel, Md., Web hosting 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.
In February, 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, will be created for Digex stockholders (other than Intermedia) and plaintiffs’ counsel fees. Net of plaintiffs’ counsel fees, one-half of the settlement fund will be distributed to holders of Digex Class A common stock as of Sept. 1, 2000.
In addition, after the completion of the Intermedia merger, WorldCom will provide Digex funding for its 2001 and 2002 business plans as approved by the Digex and WorldCom boards of directors.
WorldCom and Digex also agreed on a series of commercial arrangements that will offer WorldCom’s customers favorable access to the Digex portfolio of managed web and application hosting services. A sales channel agreement will cover sales by the WorldCom sales force of the advanced web hosting services offered by Digex, with a minimum sales commitment from WorldCom to Digex.
Digex has filed a Form 8-K with the Securities and Exchange Commission which will contain as exhibits the notice being sent to Digex stockholders, the Stipulation of Settlement, the scheduling order of the Delaware Chancery Court and the proposed Order and Final Judgment.
The acquisition of Intermedia’s controlling interest in Digex will represent a major step toward WorldCom’s execution of its web hosting expansion and will provide WorldCom with a comprehensive portfolio of managed web and application hosting products and services for mid-and large-sized businesses.
Managed web hosting facilities for Digex will be located in WorldCom data centers in the United States and around the globe.