MCI WorldCom Inc. struck a $129 billion stock deal to take over Sprint Corp. Tuesday in one of the heftiest corporate mergers ever.
The two companies plan to emerge from the agreement as a powerful rival to long-distance champion AT&T Corp. (T). Both companies also plan to aggressively target cable companies and other telephone rivals with a suite of broadband offerings.
MCI WorldCom (WCOM) and Sprint (FON) representatives said the boards of directors of both companies have approved the deal. The merged companies will operate under the WorldCom moniker and plant to provide a full range of communication services.
Monday BellSouth Corp. (BLS) made a last minute offer that almost threw a wrench into the MCI WorldCom deal to acquire Sprint. But was no agreement attained and those talks have subsequently concluded.
Duane Ackerman, BellSouth chairman and chief executive officer, said he thought Sprint was an alluring potential partner that demanded serious consideration.
“It was a transformational opportunity to combine unique assets in a way that would accelerate both vertical and horizontal growth and create additional shareholder value. We owed it to our shareholders and employees to explore this opportunity,” Ackerman said.
Bernard J. Ebbers, MCI WorldCom president and chief executive officer, said the deal means that WorldCom will have the money, plant and marketing strength to effectively compete with incumbent carriers worldwide.
“The economics of the combination are particularly compelling and WorldCom will have the capital, proven marketing strength and state-of-the-art networks to compete more effectively against the incumbent carriers domestically and abroad,” Ebbers said. “Sprint’s ability to offer a full range of wireline and wireless services will benefit our customers and fuel sustained double-digit revenue and earnings growth.”
William E. Kennard, FCC chairman, said American consumers are enjoying the lowest long distance rates in history and the lowest Internet rates in the world for one reason, competition.
“Competition has produced a price war in the long distance market. This merger appears to be a surrender. How can this be good for consumers? The parties will bear a heavy burden to show how consumers would be better off.”
Industry experts concurred that one of Sprint’s most alluring assets were their nationwide wireless network. Ebbers said that wireless services would be a large part of WorldCom’s future wireless offerings.
“The merger with Sprint is particularly timely as wireless communications emerges as a critical component of full service offerings,” Ebbers said. “Increasingly, wireless will be used for Internet access and data services, two areas in which both companies excel. Gaining an all-digital nationwide footprint with common technology and spectrum that delivers next generation capabilities is of paramount importance.”
William T. Esrey, Sprint chairman and chief executive officer, said Sprint ION broadband access would rival current cable and digital services.
“Sprint has utilized technology and marketing innovation to deliver value to consumers and businesses worldwide. Sprint ION will enable the merged company to provide end-to-end integrated broadband services for the home, as well as for the business market, as an alternative to traditional cable and telephony providers,” Esrey said. “The combined strengths of WorldCom and Sprint will allow us to bring customers a suite of fully integrated broadband and wireless all-distance services providing consumers and businesses with exciting competitive alternatives.”
WorldCom’s most immediate plans include offering innovative broadband access and nationwide digital wireless voice and data services.
The combination of the two former foes allows the new company to aggressively compete in both the business and consumer telecommunications markets. The duo also plans on heavily investing in new technologies do develop and deploy broadband Internet access and next generation wireless services.
The transaction also permits the companies to increase revenue by decreasing their churn rates. MCI WorldCom anticipates that a bundled service offering of a broad range of communications services would work to their advantage in maintaining their customer base.
When the deal is complete, Esrey will become the new company’s chairman and Ebbers its president and chief executive. The merger is subject to the approvals of MCI WorldCom and Sprint stockholders as well as approvals from the Federal Communications Commission, the Justice Department, various state government bodies and foreign antitrust authorities. The companies anticipate that the merger will close in the second half of 2000.
Glenn Manishin, an anti-trust and telecommunications attorney at Blumenfeld
& Cohen in Washington, DC., said that the MCI WorldCom-Sprint merger may
run into problems over Internet transport.
“I think there’s no question if you are familiar with the make up of the
back bone market this probably scares you in the face and it has to be
solved,” Manishin said. “The numbers that are publicly available suggest
that the combined companies may have as much of 60 to 70 percent of
Internet backbone transport. If that is the case, I see a significant
anti-trust problem.”
Ebbers said that WorldCom knows they will have to prove that the deal is
pro-competitive to federal regulators and that in the end, customers will
be the ultimate beneficiaries of the merger.
“We have spoken with Mr. Kennard and the Federal Communications Commission
and we understood it’s our burden of proof to show that this deal is
pro-competitive. We look forward to the opportunity to do just that,”
Ebbers said.
“This merger creates nothing less that the most dynamic, fully integrated
communications company in the world. The telecommuncation industry has long
been dominated by giants, today we join to form a great a company better
positioned to compete against the ‘mega-BOCs.’ This is all about growth and
that’s good news for customers, investors and employees.”
Mike McCurry, former White House press secretary and Susan Molinari, former
representative, currently co-chair Advance. The coalition works to promote competitive deployment of broadband services in the U.S.
The group issued a scathing statement Tuesday in response to the MCI WorldCom-Sprint deal.
The organization contends that “as long as government restrictions on data transmission prevent full competition for Internet backbone service, a merger between MCI WorldCom and Sprint is simply unthinkable.”
