MCI to Put Up to $2 Billion in News Corp. : Media: The deal marries the No. 2 long-distance phone company with Murdoch’s media conglomerate.

In what could be the most potent alliance yet between a telephone company and a media firm, MCI Communications Corp. announced Wednesday that it will invest up to $2 billion in Rupert Murdoch’s News Corp., forming a joint venture with the Australian company to deliver electronic information services.

The deal marries the nation’s second-largest long-distance telephone company with a diversified media conglomerate that owns the Twentieth Century Fox studio, the Fox television network, TV Guide magazine, the HarperCollins publishing company and a host of other media properties.

The announcement signals a cautious return to the merger and alliance activity of two years ago, when telecommunications giants such as AT&T;, Bell Atlantic, Tele-Communications Inc. and Paramount went on the prowl for acquisitions and partners to develop new electronic communications networks.

But this deal, officials said, was fueled less by dreams of building a costly interactive video entertainment or wireless phone network than by hopes of giving businesses and consumers enhanced access to electronic services through existing networks.

The agreement calls for the establishment of a 50-50 joint venture company that will distribute News Corp.’s television shows, movies and even books via MCI’s network--though it was not at all clear exactly how this will work, since MCI’s network does not extend all the way to individual households--at least not yet.

MCI, which earlier this year began offering consumers direct access to the Internet and has applied to provide local phone service in several U.S. cities, has been searching for an Information Age strategy since backing out of a deal last August to invest $1.3 billion in Nextel, a fast-growing provider of wireless communications services.

Flush with $4.3 billion in cash from the sale last year of 20% of its stock to British Telecom, MCI has been under pressure to find good investments and show that it is not being left behind on the information highway. Rival Sprint Corp., for example, has a far-reaching alliance with major cable companies, and AT&T; has acquired the nation’s largest cellular company.

The regional Bell operating companies, meanwhile, all have entered ventures to develop programming for their upcoming video networks.

Information “distribution into the home takes multiple paths,” Bert C. Roberts Jr., chairman of MCI, explained during a Washington news conference. “Entertainment will be an important aspect, but when you talk about information, you all of a sudden are talking about” offering services to home and business computer users, he said. “MCI will be a player” in that area, Roberts added.

At the very least, MCI could help serve the communications needs of the Murdoch TV empire--which includes a direct broadcast satellite operation in Europe as well as the Fox network in the U.S--and might also play a role in expanding News Corp.’s Delphi on-line service.

But Wall Street is not convinced that Wednesday’s deal is the answer for MCI: The company’s shares tumbled $1.69 to $20.56 on in heavy trading on Nasdaq. News Corp. shares jumped $2.50 to $23 on the NYSE.

The deal calls for MCI to initially invest $1 billion in News Corp., entitling the long-distance carrier to acquire about 39 million of News Corp.’s American Depositary Receipts.

The purchase price represents about a 22% premium over Tuesday’s closing price of News Corp. ADRs, Murdoch said. An additional $1 billion would be invested on similar terms at the option of either MCI or News Corp.

If the deal is fully consummated, MCI will become the largest outside shareholder of News Corp., with 13% of the shares.

Rivals and analysts questioned MCI’s overall strategy, saying the pairing of a long-distance company and a broadcasting and publishing concern fails to provide either party with a better pipeline into the homes or offices of consumers.

“We do think it’s very important to have that last mile connection,” said Steve Dykes, a spokesman for Sprint. In recent years, Dykes noted, Sprint and its cable TV and other partners have spent billions of dollars to develop a presence in nearly in every electronic avenue leading into homes and offices--from satellites and cable TV, to local wired and wireless phone service.

Rupert Murdoch described MCI and New Corp. as “maverick” companies with the “synergy in style and vision” to package telephone, information and entertainment services for the next generation of communications networks.

MCI’s corporate culture was built around its role as a David to AT&T;’s Goliath. News Corp. was also an outsider in the media business, first in England and then in the United States: The company just last week barely escaped sanctions for violating laws that bar foreign companies from owning more than 20% of U.S. television stations.

But some analysts said there could be a long adjustment period.

“They both may be outsiders, but the cultures of the two companies are quite different,” said Walter Bear, senior technology policy analyst at the RAND Corp., a Santa Monica-based think tank. “I think it’s a very interesting venture. . . , but they have a lot to learn from each other.”

* NOT ON BLOCK?

CBS Chairman Laurence Tisch says his network is not for sale. D2

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

The Companies at a Glance

MCI COMMUNICATIONS CORP. * Headquarters: Washington * Chief executive: Bert C. Roberts Jr. * Employees: 40,667 * Major services: Nation’s second-largest long-distance phone service provider; has strategic alliance with British Telecom to provide advanced global communications. * 1994 sales: $13.3 billion * 1994 profit: $795 million * Earnings per share: $1.32 * Wednesday stock price: $20.56, down $1.69 on the Nasdaq

NEWS CORP. * Headquarters: Sydney, Australia * Chief executive: Rupert Murdoch * Employees: 25,845 * Major holdings: Fox Television, British Sky Broadcasting, Star TV, Twentieth Century Fox Film, the New York Post, Times of London, TV Guide magazine and HarperCollins Publishers. * 1994 sales: $11.6 billion * 1994 profit: $1.3 billion * Earnings per share: $2.80 * Wednesday stock price: $23, up $2.50 on the NYSE

Source: Bloomberg Business News

Researched by JENNIFER OLDHAM / Los Angeles Times