MCI WorldCom and Sprint run into the sand

2000-07-14

All is not well for either MCI WorldCom or Sprint, as the failure of the proposed merger between the two companies,. has left each in danger of being taken over. While this may be not such a bad thing for Sprint, whose smaller size and mobile technology capability make it an attractive addition to the portfolio of any major carrier, it can only be seen as damaging for Bernard Ebbers' company. Coupled with the outages at its MAE West facility that sent shock waves across the Net, last week was not one of the best ever in MCI WorldCom's history.

Not that the deal was very likely to go ahead. As we reported \link{http://www.it-director.com/99-09-29-1.html,here} in September last year, the deal hit rocky ground as it left the starting blocks. At the time MCI WorldCom was already in trouble with the EC over its takeover of Cable and Wireless, and the proposed takeover of Sprint caused an immediate hostile reaction from the Department of Justice. The final decision by the two companies came Thursday last week, two weeks after the DOJ started the legal process of blocking the $120 million merger.

MCI WorldCom must be devastated. The deal with Sprint would have added to MCI's portfolio some capabilities that the company wanted to enable it to keep its position as one of the major US and international telecommunications companies. The deal is mobile: Sprint may be the number 3 long distance carrier in the US, which is the reason the DOJ wanted to block the deal, but this is not what attracted MCI WorldCom which urgently needed a slice of the burgeoning mobile market. Now the merger is off, the company must think again at the same time as steeling itself against a raft of takeover bids of its own (not to mention a share price which has dropped over a third since the merger was first announced - down to $47 from $75). BT has been rumoured to be considering a purchase, as well as NTT and Deutsche Telecom.

Where next for MCI WorldCom? If it was not bought first, maybe it would consider buying Orange if the latter's deal with France Telecom runs into the weeds. This would at least give the company some mobile capabilities, albeit not as extensive (or as geographically attractive to the US-based company) as would have been the case with Sprint. All is not lost but it will be a good few months before MCI WorldCom can put these events into the past.

(First published 14 July 2000)