gave WorldCom control of Digex at a bargain price. The suit was scheduled to go to trial in May.
WorldCom, Inc. and Intermedia Communications Inc.
are proposing a settlement to the lawsuit arising out of WorldCom’s planned acquisition of a controlling interest in Digex
through a merger with Intermedia. The Tampa, Fla.-based Intermedia owns 55 percent of Digex and controls 94 percent of the Laurel, Md., Web hosting company.
Under the terms of the proposed settlement and revised merger, each share of Intermedia will be 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.
The balance will be distributed to stockholders on or about the date of the completed WorldCom-Intermedia merger. Similarly, a fund of up to $15 million in cash will be created to cover expenses incurred by Digex and a special committee of independent directors of the Digex Board of Directors, as well as administrative expenses of the settlement.
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.
The proposed settlement has been approved by the boards of directors of WorldCom, Intermedia and Digex, as well as the special committee of the Digex board. In connection with the transactions, Intermedia’s financial advisor, Bear, Stearns & Co. Inc., has provided the Intermedia board of directors with an opinion that the revised exchange ratio is fair from a financial point of view to the Intermedia common stockholders.
“We are pleased to put this matter to rest and look forward to enhancing our ability to provide world-class managed web and application hosting services,” said Bernard J. Ebbers, WorldCom president and chief executive officer. “This agreement helps WorldCom accelerate momentum in its global managed hosting business and is ideally complementary to WorldCom’s range of data, Internet, VPN, and managed networks.”
The proposed settlement would, if approved by the Delaware Chancery Court, fully resolve all claims in the lawsuit and permit the Intermedia transaction to proceed.
David C. Ruberg, chairman and chief executive officer of Intermedia and chairman of the board of Digex said, “This continues to be an exciting transaction for the Intermedia and Digex stockholders, employees and other stakeholders. This settlement represents great potential future value to Digex shareholders and I believe the WorldCom-Digex business combination will be a powerful one in the web hosting marketplace.”
Shortly after WorldCom agreed to acquire Intermedia in September, 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
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.
WorldCom, Intermedia Move to Appease Digex Stockholders
