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WorldCom bids for MCI
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October 1, 1997: 3:11 p.m. ET
Offer disconcerts BT expansion plan; Merger with Brooks Fiber also slated
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NEW YORK (CNNfn) - Shares of MCI Communications vaulted following the opening bell Wednesday on news that WorldCom Inc. had launched a rival $30 billion bid for the long-distance carrier and will merge with Brooks Fiber Properties in a $2.4 billion deal.
By 3 p.m., MCI shares had gained 6-1/8 to 35-1/2, WorldCom was down 1 to 34-3/8 and British Telecommunications had climbed 5-9/16 to 72-3/16.
WorldCom's bid is a direct challenge to British Telecommunications, which announced a takeover of MCI last November.
MCI confirmed WorldCom's offer in a statement Tuesday. The company said "its board of directors would meet in due course to review all issues and options." An exact date for a meeting wasn't set.
Jackson, Miss.-based WorldCom said it will begin an exchange offer to acquire all outstanding MCI shares. WorldCom is offering $41.50 of its stock for each MCI share.
That would value its takeover of Washington, D.C.-based MCI at $30 billion, about $12 billion more than the current value of the British Telecom-MCI merger. BT's bid was initially valued at $21 billion, but in late August the companies agreed to cut the deal's value by about $3 billion.
The actual number of WorldCom shares exchanged for MCI stock would be determined by dividing $41.50 by the 20-day average WorldCom price prior to the closing of the offer. However, it wouldn't be less than 1.0375 shares or more than 1.2206 shares.
Bernard J. Ebbers, president and chief executive of WorldCom, characterized the offer as compelling for both MCI and WorldCom shareholders. (121K WAV) or (121K AIFF)
"MCI's stockholders will immediately see the superior benefits of WorldCom's offer -- a higher premium, powerful synergies and ownership in the best performing telecommunications stock over the past decade. This is just one of the indisputable reasons why a merger with WorldCom is superior for MCI's shareholders.
"While MCI and British Telecom are both great companies, the fit between them just doesn't work without sufficient local network assets in place. Because WorldCom has those assets in place, far greater synergies are possible. It is clearly a superior fit and, as a result, a superior offer."
BT had no immediate comment.
Scott Wright, telecommunications analyst at Argus Research, said WorldCom appears to have a different long-term strategy for MCI than BT.
"It looks like they are less concerned about MCI getting into the local market than BT is. This proposal seems to have better long-term value and [WorldCom] is clearly willing to pay for it.
"Strategically, it looks better and there are certainly fewer cultural issues than with BT and MCI. It looks as though [WorldCom] is giving BT a way out of this deal," Wright said. (254K WAV) or (254K AIFF)
Separately, WorldCom Wednesday announced it will merge with Brooks Fiber Properties, a provider of local telecommunications services, in a $2.4 billion deal.
Each share of St. Louis-based Brooks common stock will be exchanged for 1.65 shares of WorldCom.
Both boards already have unanimously approved the merger, which is expected to close soon after shareholders ratify the plan.
The deal will expand the number of WorldCom's local network and switching facilities to 86 from 52. WorldCom did not have facilities in most of the 44 markets already served by Brooks.
"The merger will greatly expand our total number of local networks and advance our entrance into more secondary cities by as much as two years," Ebbers said.
Ebbers said the merger is expected to boost WorldCom's revenue growth. He said the additional switching capacity will help the company move toward bundling its product offerings to enhance revenue.
--Cyrus Afzali
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