MCI to Buy Brazil’s Only Long-Distance Carrier

At Brazilian restaurants in Rio de Janeiro and Washington on Wednesday night, MCI Communications Corp. executives celebrated a World Cup-size telecommunications victory: their $2.3-billion winning bid for Embratel, Brazil’s only long-distance carrier, which will give MCI total control over long-haul voice and data communications in Latin America’s biggest market.

The acquisition will also help it better serve U.S. multinational corporations that do business in Brazil, which generates most telecommunications traffic from South America to the United States.

“It enables a General Motors or a Coca-Cola to have better one-stop shopping for basic telephony, Internet and data services,” said Jorge Fuenzalida, a Latin America telecom analyst for Deloitte & Touche Consulting in Atlanta. “MCI has a great market opportunity.”

Winning Embratel is an important new step in efforts by MCI and its soon-to-be merger partner, WorldCom Inc., to assemble a global communications system. WorldCom has been buying and building networks in many foreign countries, notably in Europe and Japan.

Embratel handles domestic and international long-distance calling for Brazil’s 17 million telephone customers, as well as data, satellite and Internet services.

The sale hands MCI the Brazilian government’s 20% equity stake in Embratel, as well as 51.8% of the voting shares of the company. MCI will be Embratel’s biggest shareholder, with the remaining shares held by financial institutions and private investors.

MCI’s winning bid was 47% higher than the minimum allowable bid of $1.6 billion.

“I think the price was just right,” said Michael Rowny, executive vice president and acting chief financial officer of MCI, who called Embratel “the crown jewel of telecom privatizations.”

Rowny watched the bidding from his office in Washington from a live televised satellite feed and used a cell phone to instruct MCI’s bidder on the floor of the Brazilian stock exchange in Rio. Sealed bids by MCI and Sprint initially were so close that auctioneers moved to a traditional “open outcry” auction, with each bidder besting the other in $8.5-million increments. Within minutes, Sprint caved and the gavel came down for MCI.

MCI must trim Embratel’s 10,000-person payroll without running afoul of Brazil’s labor unions. Embratel operates only about half the number of lines per employee as the U.S. Bell companies do, according to Fuenzalida.

Shares of Washington-based MCI rose $1.19 to close at $65 on Nasdaq.