has completed its merger with Intermedia Communications Inc., finalizing its acquisition of a controlling interest in Beltsville, Md.-based Digex. As a result of the merger, each share of Intermedia common stock was converted into the right to receive one share of WorldCom group stock and 1/25 of a share of MCI group
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.
For the Clinton, Miss.-based WorldCom, the completion of the deal ends a long and torturous process.
Shortly after WorldCom’s September agreement to acquire Intermedia, which then owned 55 percent of Digex and controlled 94 percent of the 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.
Under the final terms of this week’s deal, holders of each of the series of Intermedia preferred stock, other than Intermedia series B preferred stock, are entitled to receive one share of a class of WorldCom preferred stock for each share of Intermedia preferred stock they own. Shares of Intermedia series B preferred stock will remain outstanding as preferred stock of Intermedia following the merger.
In accordance with the Digex Delaware Stockholders Litigation settlement, WorldCom contributed 9.8 million shares of freely tradable WorldCom group stock and 395,873 shares of freely tradable MCI group stock ($165 million of securities based on the prescribed pricing formula) to a settlement fund to be distributed to Digex shareholders of record on Sept. 1, 2000 and June 29, 2001.
“The closing of the Intermedia merger finalizes our acquisition of a controlling-interest in Digex, the industry’s leading web-hosting provider,” said Bernard J. Ebbers, president and chief executive officer of WorldCom. “Now, we have the freedom to fully utilize Digex’s unique assets to fuel our web hosting expansion by providing a comprehensive portfolio of mission critical hosting products and services for businesses of all sizes.”