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MCI stock defies merger
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November 6, 1996: 8:42 p.m. ET
Wall Street appears to be shrugging its shoulders at BT, MCI deal
From Correspondent John Defterios
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NEW YORK (CNNfn) - Stocks in takeover targets usually jump in price, but that's not happening in the case of MCI Communications.
Shares of the telecommunications company have been falling of late, slipping again Wednesday to close down 1/8 to $29, well below the $36 offered by British Telecom in a merger pact announced over the weekend.
Lou Ehrenkrantz, president of Ehrenkrantz King Nussbaum said although MCI and BT are confident regulators will sign off on their deal, Wall Street is not convinced.
"This talk about the internationalization and the globalization of business is nice, but it's honored more in (theory) than in the observance, by both Europeans and Americans," he said.
If the deal doesn't go through, many investors are worried at the prospect of MCI going it alone.
Deutsche Morgan Grenfell is one of several investment houses that downgraded MCI after the deal was announced.
Stuart Conrad, the investment bank's telecommunications analyst, said he wanted to know why MCI would sell itself for only $36 a share when management recently insisted it was worth at least $40. (127K WAV) or (127K AIFF)
Analysts say MCI must be quite worried about competition from the Baby Bells and other phone service providers.
The stock is also being weighed down by worries that the linkup with BT changes MCI from a fast-growing, entrepreneurial company to a slow-growth one with a steady dividend.
Since British Telecom just announced a special dividend, investors are also worried that its stock will drop after the payout. Such drops are typical, but would cause MCI shares to fall further since its price is now tied to its new owner.
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