MCI WorldCom to Buy Sprint for $100 Billion
MCI WorldCom agreed Monday to buy Sprint Corp. for more than $100 billion, the highest priced merger in history and an acquisition that will have a far-reaching impact on the future of the telecommunications industry.
The deal, in which BellSouth lost a short but intense bidding war, came after more than a week of speculation that Sprint would soon be purchased by MCI WorldCom to form a company with the heft to take on long-distance leader AT&T; Corp. and growing rivals overseas. It was approved by the boards of the two firms Monday evening.
Terms of the merger have not yet been announced, but the price is far above MCI WorldCom’s initial offer of $65 billion in stock. The combination of the two telecommunications leaders is likely to receive sharp regulatory scrutiny since the companies have overlaps in some of their businesses.
Together, the companies would have 39 million customers and 148,000 employees, with sales totaling more than $65 billion. However, the merger would likely result in lost jobs as the firms consolidate operations.
It is unclear what impact the deal would have on consumers, since the long-distance market would likely remain highly competitive without Sprint, as evidenced by the large number of rivals and dropping per-minute prices.
Although the exact value of the deal has yet to be announced, it will undoubtedly set a new record for the world’s largest corporate merger, outpacing the $82.5-billion pending merger of Exxon Corp. and Mobil Corp., a stock deal announced late last year.
Merger rumors have dogged Sprint on and off for years, but as a string of megamergers created ever-larger rivals, analysts came to believe that Sprint--despite having more than $17 billion in yearly sales--was too small to survive on its own.
It was not the first time that aggressive bidding by MCI WorldCom Chief Executive Bernard Ebbers has outflanked the competition. The brash Mississippi executive has outmaneuvered dozens of competitors in the last decade, during which he has assembled a telecommunications empire.
Company officials refused to comment on the reports late Monday. Details of the agreement are expected to be announced today.
With speculation mounting throughout the day, Sprint shares gained $3.88 to close at $60.88 on the New York Stock Exchange, a gain of nearly 7%. MCI WorldCom rose $1.13 to $71.63 in Nasdaq trading, while BellSouth dropped $2.69 to end the day at $42.69 on NYSE, a 6% drop.
Analysts generally favored a deal with MCI WorldCom, noting that it offered fewer regulatory complications and more immediate gains for shareholders as the two firms eliminate overlapping operations.
“This would provide immediate, reliable, predictable cost-savings to the shareholders, because WorldCom has done this over 50 times in the last decade,” said Scott Cleland, telecommunications analyst at Legg Mason Inc.’s Precursor Group.
A MCI WorldCom-Sprint merger would join the country’s No. 2 and No. 3 long-distance companies, giving the combined entity the scale and reach analysts say is necessary to compete against market leader AT&T; and emerging giants overseas.
MCI WorldCom is a far more aggressive marketer than Sprint--and that fact has led to more than a few scrapes with state attorneys general over allegations of slamming, where customers are switched to another company without their knowledge.
The big draw for MCI WorldCom’s primary interest is in Sprint’s fast-growing wireless phone business, which is traded as a separate stock but would be included in the deal. MCI WorldCom is the only top-tier phone company without a wireless network of its own, a gap that prevents the company from offering corporate customers a full line of services, from Internet access to local, wireless and international phone service.
One-hundred-year-old Sprint, based in Westwood, Kansas, has roots in the local phone business, and thus has direct access to more than 7 million homes in 18 states--equal to about 4% of local lines nationwide. The company began as the Brown Telephone Co. in 1899 in Abilene, Kan.
Industry analysts believe the marriage between the two long-distance giants could win regulatory approval, but that the two companies would likely have to divest some Internet network assets, where both companies have dominant positions.
Some in the industry still believe that a three-way deal could emerge, with BellSouth picking up some of the Sprint assets.
MCI WorldCom, meanwhile, is already the product of many mergers orchestrated by Ebbers. Last year, the company completed the $40-billion WorldCom-MCI merger, as well as the multimillion-dollar purchases of Internet service provider CompuServe and the local network company Brooks Fiber. The company’s more recent purchases include several wireless cable companies and SkyTel paging.
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Bloomberg News Service and the Associated Press contributed to this story.
