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MCI WorldCom-Sprint Faces Regulatory Hurdle

Antitrust: The companies must prove that competition will not be hindered in merger.

May 19, 2000|From Reuters

WASHINGTON — MCI WorldCom Inc. and Sprint Corp. expressed optimism Thursday that their $115-billion merger would be approved, although staff of the Justice Department are said to dislike the deal.

MCI WorldCom wants to buy Sprint for its national wireless and fiber networks and large customer base, but it must convince U.S. and European regulators that the combination of the No. 2 and No. 3 U.S. long-distance companies would preserve competition, low prices and innovation.

And although sources said the Justice Department staff doesn't like the deal, they also made clear that the staff would do no more than make a recommendation to the chief of the antitrust division, Joel Klein.

"There is only one decision maker" in the antitrust division, one person said in reference to Klein. And it is impossible to predict what he might do, sources said.

A Justice Department spokeswoman would say only: "The matter is pending."

Meetings between Justice Department officials and those of the companies will be held in the next few weeks, sources said.

Sources familiar with the deal said Sprint and MCI are continuing to present their case to the Justice Department and no formal recommendation will be made until that process is complete.

"This is likely to break around the end of June and is going to be real negative," one source said.

In the interim, they said, a report has been sent by Stephen Axinn--a private New York antitrust lawyer on leave to help the Justice Department--to Klein expressing his views.

MCI WorldCom and Sprint said they remain confident the deal will close and declined to comment on the status of discussions with U.S. and European regulators.

"If you look at all the changes that have happened [in the long-distance market]--from the regulatory arena, to the way technologies have changed and the way the competitive landscape has changed--all that stuff when taken into account proves in our view that the merger should be approved," an MCI WorldCom spokesman said.

The companies already have offered to shed Sprint's Internet backbone to ease concerns about the combined companies' dominance in that market. MCI has been adamant against shedding its prized UUNET Internet unit.

Analysts were mixed on whether the MCI WorldCom-Sprint deal would fall apart.

The companies could be forced to divest some long-distance and local telephone operations, as well as sever ties with some large multinational clients, analysts said.

The misgivings of the Justice Department staff were reported in the Thursday editions of the Wall Street Journal and the Washington Post, and pressured shares of MCI WorldCom and Sprint lower. WorldCom slipped $2.44 to close at $39.56 on Nasdaq, while Sprint fell $1.75 to close at $56.25 on the New York Stock Exchange.

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