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MCI, SkyTel combine
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May 28, 1999: 5:19 p.m. ET
Long-distance giant to gain foothold in wireless messaging business
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NEW YORK (CNNfn) - Long-distance carrier MCI WorldCom Inc. and wireless messaging firm SkyTel Communications Inc. agreed to merge Friday in a stock transaction valued at $1.2 billion, plus $800 million in debt.
The deal gives MCI WorldCom (WCOM) a foothold in the wireless communications business, which is seen as an increasingly important property to long-distance carriers.
Under terms of the agreement, SkyTel (SKYT) shareholders will receive 0.25 shares of MCI common stock for each SkyTel share. Based on the average trading price of MCI shares as of Thursday, the deal values SkyTel shares at $21.24 a share.
The equity component of the deal values the transaction at $1.2 billion. Including the assumption of SkyTel debt, the value of the deal totals $2 billion, according to an MCI spokesman.
"SkyTel is the industry leader in wireless messaging, and is ahead of the curve in developing and implementing wireless data applications," said Bernard Ebbers, MCI president and chief executive officer.
Frank Governalli, telecommunications analyst at Credit Suisse First Boston, said the deal was a coup for MCI because the No. 2 long-distance carrier was able to gain a presence in the wireless market without having to pay a premium for SkyTel.
"There's a growing recognition of the need not only for a broad geographical base, but a complete product offering," Governalli said.
Analysts said wireless access will become a more prevalent means of communications in the next few years, as evidenced by 3Com Corp. 's (COMS) new PalmPilot VII handheld computer, which includes wireless Internet access.
"I think for MCI, getting wireless access is driven by primarily by data and secondarily by voice," Governalli said.
Governalli added that the deal also gives SkyTel much-needed marketing muscle.
"I think being a standalone wireless company is a very difficult position to be in," he said. "SkyTel is not a mass-market company."
Rumors of a pending deal between the two companies surfaced earlier this week after an employee at MCI registered an Internet domain name skytelworldcom.com. The company said the employee was acting on his own and later said it was withdrawing the name.
An MCI spokesman wouldn't comment on the domain registration.
MCI had previously tried to gain wireless assets through a possible combination with Nextel Communications Inc. (NXTL), but the two sides terminated negotiations earlier this month.
MCI said it expects the deal to add to its earnings upon closing.
Both MCI and SkyTel are based in Jackson, Miss. metropolitan area.
MCI shares rose 1-7/16 to close at 86-3/8 in Friday trading. SkyTel shares finished up 1 at 20-5/16. 
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MCI WorldCom
SkyTel
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