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WorldCom Makes $30-Billion Offer to Take Over MCI

Business: If successful, the deal would be the largest merger in U.S. history. Bold new bid threatens British Telecom agreement to acquire the company.


WorldCom Inc., until recently a little-known purveyor of long-distance phone service, on Wednesday launched an audacious bid of nearly $30 billion for MCI Communications Corp.--a deal which, if completed, would be the largest corporate merger in U.S. history.

The bid appears likely to scuttle MCI's agreement to be acquired by British Telecommunications. But it is sure to face intense scrutiny from MCI management and shareholders as well as regulatory hurdles in Washington.

A successful deal would establish WorldCom as the No. 2 player behind AT&T Corp. in the fast-growing telecommunications industry. The new company would be able to provide local, long-distance and Internet services to retail and business customers in scores of markets across the country--making it a significant challenger to both AT&T and the well-entrenched regional Bell telephone companies.

The telecommunications industry has undergone a wave of consolidations since Congress passed a broad deregulation law last year. The legislation was supposed to produce greater competition and lower prices, but to date it has mainly yielded a string of mega-deals--including the $22-billion merger of Bell Atlantic Corp. and Nynex Corp., and the $15.7-billion combination of SBC Communications Inc. and Pacific Telesis Group.

Wednesday's dramatic offer attests to a continuing belief in the telecommunications business that size will be crucial in a coming period of global competition. And it confirms WorldCom's solid standing on Wall Street, which has witnessed--and profited handsomely from--the firm's astonishing growth through more than 40 acquisitions in five years.

"I wouldn't want to be the man to bet against them," said Gregory P. Miller, a telecommunications analyst for the securities firm Jefferies & Co. "This puts a collection of assets together on one grand scale. It will be years before you see another company with the ability to do this."

WorldCom's offer comes in the wake of British Telecom's decision this summer to cut its own takeover offer for MCI from $21 billion to $17 billion after MCI warned of weak financial results. Few on Wall Street expect British Telecom to turn around and raise its bid to counter the WorldCom deal.

As of late Wednesday, Washington-based MCI had not formally replied to the WorldCom offer beyond issuing a statement that it would consider the bid "in due course."

WorldCom Chairman and Chief Executive Bernard J. Ebbers said at a press conference that he had spoken by phone with MCI Chief Executive Bert C. Roberts Jr. earlier in the day, but he declined to detail what was said during the conversation.

As for the price, Ebbers said in public and in a letter to Roberts that WorldCom's bid of $41.50 in WorldCom stock for each MCI share is worth "approximately $30 billion." An MCI spokesman, however, said that company has 708 million shares outstanding, making the WorldCom bid worth $29.4 billion. WorldCom said it would assume another $4.5 billion in MCI debt as part of the deal.

Since its founding in 1983 as Long Distance Discount Services, WorldCom has grown into the fourth-largest long-distance phone company in the nation.

But it only won attention as a major player in the telecommunications industry last year, with its $12.5-billion purchase of MFS Communications Co. MFS was the provider of local telephone services to businesses in about 60 regional markets and was also the owner of UUNet Technologies, a major provider of Internet services.

Last month, WorldCom made another splash by purchasing CompuServe Inc., the online service, and then trading that company's consumer subscribers for the Internet transmission operation of America Online Inc.

On Wednesday, in addition to the attention-grabbing MCI bid, WorldCom also announced the acquisition of Brooks Fiber Properties, a provider of local telephone services in about 40 markets, for $2.4 billion.

Those announcements, as well as earlier transactions, illustrate how WorldCom's growing prominence has enabled it to exploit a financial resource that is better than greenbacks: its own stock. The company pays for its deals with its shares, which have soared in value by 56% in the last year alone as Wall Street continues to hold technology and telecommunications companies in high esteem.

"This is simply the 1990s writ large," said Tom Burnett, founder of Merger Insight, a New York service that analyzes merger deals for institutional clients. "[Ebbers] has got a currency that means he doesn't even have to write a check."

The phenomenon has allowed aggressive companies like WorldCom "to expand geometrically in the blink of an eye," Burnett said. But it also makes them particularly vulnerable to unexpected stock collapses, which would destroy their ability to finance their acquisitions.

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