FCC chairman questions merger with MCI WorldCom Inc.

Noelle Knox

Tuesday, Oct. 5, 1999 | 11:32 a.m.

NEW YORK -- MCI WorldCom Inc. has forged the largest corporate takeover in history, announcing today a $129 billion acquisition of Sprint Corp., the nation's third-largest long-distance company.

The nation's top telephone regulator immediately warned the companies that they "bear a heavy burden to show how consumers would be better off" as a result of the merger.

The combined company will be called WorldCom and will control 30 percent of the U.S. long-distance market, offer wireless phone and paging services and an Internet network. WorldCom also will be a stronger competitor to AT&T Corp., the nation's largest long-distance and cable TV company.

But William E. Kennard, chairman of the Federal Communications Commission, said MCI WorldCom and Sprint will have to make a strong case for approval of the deal.

"American consumers are enjoying the lowest long-distance rates in history and the lowest Internet rates in the world for one reason: competition," Kennard said in Washington. "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?"

Bernard J. Ebbers, president and chief executive of MCI WorldCom, told reporters in New York, that "we understood from day one it is our burden of proof to show this is pro-competitive." He added, "We look forward to the opportunity of doing that"

Consumers might not see any immediate benefit from the acquisition of Kansas City, Mo.-based Sprint because long-distance and wireless calling rates are already at historic lows. The new WorldCom, however, will offer a broader range of products by combining the strengths of MCI WorldCom and Sprint.

MCI WorldCom late Monday sweetened its offer to $76 per share in stock rather than risk losing Sprint to rival BellSouth Corp., which had offered $72 per share in cash and stock, or $100 billion.

Both companies' boards voted to approve the deal Monday evening, and it was formally announced this morning.

In trading this afternoon, Sprint was down 62 1/2 cents at $60.25 a share on the New York Stock Exchange, while MCI WorldCom fell $3.43_3/4 to $68.18 3/4 on the Nasdaq Stock Market.

The deal would be the largest corporate merger ever, eclipsing the pending $82 billion deal between Exxon Corp. and Mobil Corp.

MCI WorldCom is the nation's second biggest long-distance company and one of the world's biggest operators of the networks that make up the Internet, but has no wireless calling business. Sprint PCS would fill that hole nicely.

"The merger with Sprint is particularly timely as wireless communications emerges as a critical component of full-service offerings," said Ebbers. "Increasingly, wireless will be used for Internet access and data services, two areas in which both companies excel."

In a statement today, BellSouth said talks with Sprint had concluded without any agreement. "We owed it to our shareholders and employees to explore this opportunity," said Duane Ackerman, chairman and chief executive officer of BellSouth.

Deutsche Telekom AG, which owns 10 percent of Sprint, may sell its stake and use the proceeds to make acquisitions, a Telekom spokesman said.

The spokesman, Hans Ehnert, ruled out the possibility of a counteroffer by Deutsche Telekom for the rest of Sprint, saying the price paid was "much too high" and "for us not imaginable."

BellSouth was seeking Sprint's long-distance business to complement its local telephone business in nine Southeast states. Like the other Baby Bells, the Atlanta-based company is hopeful that federal regulators will soon allow it to offer long-distance service in its home region.

Ebbers, a former basketball coach and motel operator, has proved again to be a master dealmaker. Ebbers, 58, built a small Jackson, Miss. communications company into a powerhouse.

Ebbers will be president and chief executive of the new WorldCom. William T. Esrey, chairman and chief executive of Sprint, will be chairman of WorldCom.

Sprint shareholders will get $76 worth of MCI WorldCom's stock, as long as the shares trade between $62.15 and $80.85 a share. Shareholders of Sprint PCS, the stock that tracks the performance of Sprint's wireless business, will exchange their shares, on a 1-for-1 basis, for shares in WorldCom PCS. They also will receive .1547 of a share of MCI WorldCom stock, worth $11.08, based on Monday's closing price.

MCI WorldCom will pay $115 billion in stock and assume $14 billion in Sprint debt and preferred stock.