GTE slams phone deal
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May 8, 1998: 12:17 p.m. ET
Jilted suitor files suit in federal court to block Worldcom's $38B buyout of MCI
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NEW YORK (CNNfn) - GTE Corp., hoping to head off what it calls their ability "to monopolize the Internet," announced Friday it has sued to block WorldCom Inc.'s $38 billion buyout of MCI Communications Inc.
GTE, which itself courted MCI until two months ago, also said the merger would hurt competition in long-distance service.
The suit, filed late Thursday at U.S. District Court in Washington, comes just as European and U.S. antitrust regulators take a close look at the proposed deal.
"We are confident that the merger authorities will conclude that this merger is unlawful and cannot go forward," William Barr, executive vice president and general counsel at GTE, said in a statement Friday.
"GTE must be in a position, if necessary, to vindicate its rights and ensure that all its concerns have been adequately and effectively met," Barr said. "This matter is important to GTE as both a customer and a competitor."
Despite the GTE lawsuit, which could delay the deal's consummation, MCI said it expects to close this summer.
In the lawsuit, GTE said MCI-WorldCom would own between 40 and 60 percent of the so-called "backbone" network that connects data points on the Internet.
"That's a phony number," said MCI spokesman Frank Walter. "We don't believe backbone traffic can be accurately measured."
GTE was one of two suitors whose bid for MCI was trumped last year by WorldCom's $38 billion bid. British Telecom also had a bid on the table.
Now, Walter said, GTE is trying scuttle the deal. "GTE lacks credibility on this issue
it's OK when GTE wants to merge with MCI, but it's not OK when a company half its size with an extremely competitive track record tries."
GTE had kept its rival $28 billion all-cash offer on the table until mid-March, about the same time the Justice Department began sounding out competing phone companies about their take on the deal.
The European Commission, meanwhile, is scheduled to hold hearings next week on deal.
When they announced their deal last November, MCI and WorldCom touted the alliance as creating the world's largest carrier of Internet traffic. MCI and WorldCom officials have argued that a merger of the two companies would expand competition.
A WorldCom spokeswoman declined to comment, citing company policy on pending lawsuits.
In early trading Friday, shares of MCI (MCIC) rose 1/16 at 49-1/2, and WorldCom (WCOM) shares were unchanged at 42-13/16. Shares of GTE (GTE) rose 9/16 to 57-7/8 on the New York Stock Exchange.
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