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GTE bids $28B for MCI
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October 15, 1997: 8:58 p.m. ET
Offer represents $40 per share; Chairman Lee requests meeting soon
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NEW YORK (CNNfn) - In a remarkable development in the struggle to take over the nation's second-largest long-distance provider, GTE Corp. said late Wednesday it has stepped into fray with a $28 billion, all-cash bid for MCI Communications Corp.
The deal comes two weeks after WorldCom Inc., the nation's fourth-largest long-distance company, proposed a $30 billion stock swap for MCI, countering another bid by British Telecommunications PLC announced last November.
The Stamford, Conn.-based company said its offer translates to $40 a share in cash. That would make it the biggest all-cash offer in history. However, GTE also stated it is willing to explore the possibility of a combined cash and stock offer.
In a letter addressed to MCI Chairman Bert Roberts, GTE's Chairman Charles Lee is requesting a meeting "as soon as possible."
GTE further said its financial advisers believe financing would be "readily available."
A combined company would have annual revenue in excess of $40 billion.
MCI has confirmed receipt of the letter from GTE Chairman Charles Lee. The Washington-based company said it will review the offer, as well as WorldCom's bid, in the context of the British Telecom offer.
GTE's Vice Chairman Michael Masin said late Wednesday evening that he is "very hopeful" that British Telecom would become a full partner in the newly formed company. BT currently owns a 20-percent minority stake in MCI.
Meantime, WorldCom said in its own statement that it believed its offer provided MCI shareholders with superior value.
The deal provides GTE with the same opportunities available to WorldCom -- the link between a local and long-distance phone giant. In fact, the high costs behind entering the local phone market was a contributing factor in delays of the BT deal.
Indeed, AT&T Corp. -- once the dominant industry leader -- has already raised red flags with regulatory concern.
"We fully expect the government to require GTE to get serious about opening its local markets to real competition," AT&T said in a statement.
Shares of GTE (GTE) closed the day down 2-3/16 at 48 on the New York Stock Exchange. MCI's stock (MCIC) rose 1-5/8 to 36-3/4 after a brief trading halt. Both issues were halted in after-hours trading.
Meanwhile, WorldCom stock (WCOM), which fell 1-5/16 to 35-7/16 during the regular session, was down at 35-3/8 in the Instinet trading system.
Analysts agree that cash offers generally are more attractive for investors than stock offers. However, because of the different valuations, MCI shareholders and directors will face the difficult decision of choosing a superior offer, analysts said.
"What this really is ... is this is calling into question the current value of WorldCom's equity," said Phil Sirlin, analyst at Schroder & Co.
"This is something else. This is going to take some thinking," said Scott Wright, analyst at Argus Research.
"The difference here is... Do you want to get your money today or do you want to go along for what's been a tremendous rise on the WorldCom stock," Wright said.
"I am more convinced than ever that the combination of our companies would serve the best interest of our shareholders," GTE's Lee said in his letter to MCI's Roberts.
However, not everyone believes the deal will benefit MCI.
With MCI-WorldCom, "you have an entity that's extremely well-positioned to go after the business customer. The synergy with GTE is not quite as obvious," Schroders's Sirlin said.
-- Robert Liu
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MCI
GTE
British Telecom
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