Profit-Rich MCI to Buy Telecom for $1.25 Billion

MCI Communications Corp., flush with profits from its rapid growth of recent years, said today that it has agreed to acquire No. 4 long-distance operator Telecom USA Inc. for $1.25 billion.

Under terms of the deal, MCI will pay $42 a share--a huge premium over the $21.875 a share at which Atlanta-based Telecom closed Friday on the New York Stock Exchange.

The $1.25-billion purchase price is nearly twice Telecom’s annual revenue of $713 million.

MCI is the second-largest long-distance telephone service provider with sales last year of $6.5 billion.

Its first major acquisition marks a surprising new turn for the scrappy MCI which initially won consumers by selling itself as a low-priced long-distance alternative to American Telephone & Telegraph Co.

More recently, it scored gains by going into the AT&T-dominated; business market, marking its maturing as a company that provides reliable service as well as cheap rates.

Cracking the business market, with its higher profit per customer, boosted MCI’s profit sixfold in the last two years. It gave the company enough capital to make its new acquisition, which will help keep MCI’s rapid growth on track at a time when some said expected it to slow.

“The prospect of merging two dynamic, high-growth companies with similar cultures is very exciting, “ said Bert Roberts Jr., president of MCI. “Both organizations have played a major role in advancing technology, developing innovative services and meeting customer requirements.”

In early trading today, MCI fell $1.25 to $35.675, reflecting concerns over the cost of the acquisition. Telecom’s stock was halted.