NEW YORK (CNNfn) - Long-distance upstart WorldCom Inc. emerged victorious Monday in its battle with British Telecommunications Plc and GTE Corp. for control of MCI Communications Corp.
WorldCom and MCI announced Monday the two had agreed to a $37 billion merger that values MCI at $51 a share and creates a telecommunications conglomerate with an estimated $30 billion in 1998 revenues.
Under terms approved by both companies' boards of directors, MCI shareholders will receive $51 in WorldCom common stock for each MCI share they own. BT will receive $51 a share for each Class A MCI share it owns and will get a $465 million termination fee.
The deal would combine the second- and fourth-largest U.S. long-distance providers and create a powerhouse in global telecommunications and Internet services.
WorldCom's offer topped GTE Corp.'s $28 billion, or $40 a share, cash bid made last month. Had it been accepted, it would have been the largest cash bid in history and created a company with $40 billion in annual revenues
British Telecom, MCI's initial suitor, has agreed to the deal, the companies said. MCI and BT have both agreed not to proceed with their existing $17 billion merger agreement. MCI said it would continue serving customers of the two companies' Concert venture.
The deal will be accounted for as a purchase and will be tax-free to MCI shareholders. Once the deal is completed, MCI shareholders will own about 45 percent of the combined company. WorldCom expects to complete the deal in six to nine months.
MCI chairman Bert Roberts will become chairman of the new company, to be called MCI WorldCom. WorldCom's president and chief executive officer, Bernard J. Ebbers, will become president and chief executive officer of the new company.
Both Roberts and Ebbers said the deal was in the best interest of both companies' shareholders and capitalizes on the strength of both companies.
"The benefits of this merger are compelling for the stockholders of both MCI and WorldCom -- powerful synergies and ownership in the best performing communications stock over the past decade. This merger is about growth -- value for stockholders, enhanced products and services for customers and new opportunities for employees," Ebbers said.
"We are more strongly positioned now than ever before to fulfill the promise of competition and the Telecommunications Act of 1996 and to capture the biggest growth opportunities emerging around the world," Roberts said.
Officials said after looking thoroughly at both companies' structures, they determined the merger would save the companies $20 billion over the next five years. That's up $5 billion from when discussions first got under way.
Roberts said MCI carefully weighed all competing bids, including the latest from GTE. After reviewing all proposals, he said MCI and WorldCom had the most in common and would make the best partners. (338K WAV) or (338K AIFF)
Roberts said both companies have the same vision, particularly when it comes to entering local markets.
"Both of us are committed to going after local markets with a vengeance. It remains a market that is thwarted by monopolies, but with the investments we have made, we have an opportunity to break through those barriers and make great gains," he said.
Tim Price, president and chief operating officer of MCI, said residential customers will be the first to benefit as those barriers are broken.
"The first difference MCI residential customers will see is we'll be able to get into markets sooner with local services. They will be able to get those sooner," he said.
Damon Vickers, telecommunications analyst at Janssen/Meyers, said WorldCom was willing to pay a hefty price for MCI because it believes a combination would bring more revenue opportunities. (507K WAV) or (507K AIFF)
More and more, Vickers said, telecommunications companies will have to take a global approach to business if they want to compete.
"In the future, a big part of their business will be integrated communications services and WorldCom has a vision of that. WorldCom sees a customer base and the ability to provide many products that the world's population is increasingly accumulating an appetite for," he said.
Now that GTE has failed in its attempt to acquire MCI, Vickers said GTE becomes a likely acquisition candidate.
"Long distance carriers clearly have to do something. The cost structure of their business has done down. I don't know if it's impossible to imagine long distance rights might eventually be free, Vickers continued.
He said GTE "will have to partner with companies that have value-added services. Without a partner, their business model would suffer going forward."
The merger must still be approved by the Federal Communications Commission, the Justice Department, various state regulators and the European Commission.
-- by staff writer Cyrus Afzali