MCI gets hands on Sprint

1999-10-11

In the largest corporate takeover in the US ever, MCI WorldCom agreed to shell out $129 million in a merger which will bring wireless communications into the portfolio of the telecomms giant. Bernard Ebbers, WorldCom CEO remarked on his surprise at the size of the deal, stating glibly that “I thought I agreed to much lower numbers.” As we noted in our previous previous analysis of the merger talks, however, Ebbers is renowned for statements which disagree with the reality of the situation. In this case he clearly felt the steep price was worth it. The question is, what now?

The biggest hurdle that the betrothed giants face is the regulators, both in the US and Europe (where MCI are still clearing up the mess caused by a previous deal with Cable and Wireless). The companies have stated their intentions to keep the various elements of the businesses together, describing as “prudent”, for example, their intentions to have more than one Internet backbone. Whether this is sustainable remains to be seen but is unlikely - sooner rather than later, the merged corporate will have to decide which of its backbones is strategic, as it will not be able to route the same traffic over both.

The road is both long and pitted, however clearly this is a deal which MCI Worldcom decided it could not afford not to make. Fair enough – the wireless world is advancing at a cracking pace, with mobile phones mooted to outnumber land phones in Europe within two years, and with deals being brokered all the time (like Bell Atlantic Corp and Vodafone AirTouch setting up a new US mobile company). Worldcom risked being left further behind with every week that passed. It will be interesting to see how much of their current merger strategy remains in one piece by the end of the year.

Following a fall to $68.5 after the announcement, MCI Worldcom’s share price rallied to $76.88 by the end of last week.

(First published 11 October 1999)