Roll Out the Red Tape
After thriving as an independent company in the fast-moving telecommunications industry, MCI Communications Corp., its shareholders and customers are about to find out how slow and arduous the merger business can be.
As the long-distance giant last week began formal talks with its three competing suitors--British Telecommunications, WorldCom Inc. and GTE Corp.--lawyers and advisors for the three companies were settling in for months of legal and regulatory wrangling with as many as 30 state, federal and international agencies.
Although businesses of all stripes have complained about excessive government red tape, telecommunications deals are indeed special cases. Along with utility and bank mergers, they are among the most closely scrutinized of business transactions.
The $22-billion merger of Bell Atlantic Corp. and Nynex Corp., for instance, was reviewed by the Justice Department and Federal Communications Commission for nearly a year and a half before the FCC finally gave it the green light in August.
Similarly, it took government regulators a year to approve both the $15.7-billion combination of SBC Communications Inc. and Pacific Telesis Group as well as AT&T; Corp.’s $11.5-billion purchase of wireless giant McCaw Cellular Communications Inc.
“I think you find any time you have more than one agency involved, things are going to take time--the more parties at the table, the more cooks in the soup,” said Melinda Mullet, director of regulatory affairs in the Washington office of Arthur Andersen.
But in MCI’s case, at least one of the suitors, WorldCom, is wooing the long-distance carrier by claiming its offer is so streamlined and so well-packaged that it can secure all of the needed regulatory approvals in less than six months.
“Our deal is much faster and cleaner than GTE’s,” said Andrew Lippman, a partner in the Washington law firm of Swidler & Berlin, which is acting as outside counsel for WorldCom. “It carries a lot less regulatory risk.”
Antitrust scrutiny theoretically is supposed to be a fast-track affair so as not to unduly hinder the wheels of commerce.
Such reviews are governed principally by the Clayton and Hart-Scott-Rodino Act, which permits companies to close their deals within 21 days after government antitrust officials make a so-called second request for documents.
“In a typical merger, if the only clearance that’s needed is Hart-Scott-Rodino review, then the antitrust agencies are subject to some real time pressures,” said Phil Verveer, a Washington communications lawyer who served as lead counsel in an antitrust investigation of AT&T; from 1973 to 1977.
“But what happens in a communications merger is that the FCC--and oftentimes state agencies--have to also approve the deal. So the process is a lot longer,” Verveer said.
But Lippman said WorldCom’s deal will take less time because WorldCom, which has gobbled up more than 40 companies over the last decade, has lots of merger experience and has set up a special voting trust to facilitate the speedy transfer of communications licenses. FCC approval of license transfers has traditionally been the main factor holding up the speedy completion of telecommunications mergers, experts say.
“WorldCom is a veteran in the transfer-of-control arena,” Lippman said. “We think we can get all of the needed federal, state and international approvals by the first quarter of 1998.”
But GTE and some experts doubt that WorldCom’s offer--from a regulatory standpoint--could be consummated significantly faster than the competing offers.
Like both GTE and British Telecom, WorldCom has overseas as well as domestic local and long-distance operations that will draw extensive federal, state and international scrutiny. WorldCom operates in all 50 states domestically, and experts expect regulators from at least two dozen of those states to review WorldCom’s bid.
“WorldCom is dead wrong” about having an inside track on speed, said Richard E. Wiley, a Washington lawyer who represents GTE. “ . . . In the context of competing offers, shareholders should be able to make their decisions based on economic value, unencumbered by differences in predictions over the timetables for regulatory approval.”
Indeed, other telephone companies have in the past voiced optimism for fast-track regulatory approval, only to find themselves mired in agonizingly long and costly discussions with federal regulators over the potential anti-competitive impact of their various business units.
When he announced his company’s merger with Nynex on April 22, 1996, Bell Atlantic Chairman Raymond Smith predicted the deal would close within 12 months. Instead, it took 17 months, a delay that Edward D. Young III, associate general counsel of Bell Atlantic, said cost the company at least $300 million.
*
Jube Shiver Jr. covers telecommunications from The Times’ Washington bureau.
