MCI WorldCom Stock Slips Amid Sprint Talk
Shares of MCI WorldCom Inc. fell Friday amid reports that it is in talks to buy Sprint Corp., a move that would create a more formidable challenger to long-distance and wireless leader AT&T; Corp.
No transaction is imminent, and MCI WorldCom’s talks with its No. 3-ranked competitor could collapse, according to a person familiar with the discussions.
Together, MCI WorldCom and Sprint control about 30% of the $80-billion-a-year U.S. long-distance phone market and have more than $35 billion in annual sales. AT&T; has about 48% of the market.
On Friday, MCI WorldCom shares ended down $2.38 at $76.13 on Nasdaq. Sprint jumped $2.88 to $54 and Sprint PCS fell $1 to $73.50 on the New York Stock Exchange.
One proposal under discussion calls for MCI WorldCom, the No. 2 long-distance company, to acquire Sprint with stock and issue tracking shares for Sprint PCS, its unprofitable wireless unit. A purchase of the businesses, which have a combined market value of about $80 billion, would be one of the largest ever.
The big attraction for MCI WorldCom Chief Executive Bernard Ebbers is Sprint’s fast-growing national mobile phone operations.
Despite previous attempts to join in the wireless phone business--through an investment in the bankrupt NextWave venture, and then through failed merger talks with Nextel Communications--MCI WorldCom remains the only major U.S. phone company without its own mobile phone network.
MCI WorldCom is under mounting pressure to fill that gap, especially in light of the deal announced this week that will link the wireless networks of Bell Atlantic and Vodafone AirTouch, and the industry’s shift toward selling packages of products that include wireless service.
For its part, Westwood, Kan.-based Sprint has been the subject of takeover rumors for several years, and talks with various suitors have often heated up only to ultimately collapse.
“We keep listening . . . and people are talking to us forever, it seems,” Sprint Chief Executive William Esrey told The Times in a recent interview. “But we’re not working under the mantra that bigger is better per se, because bigness doesn’t guarantee anything.”
Analysts, however, believe Sprint is too small to survive on its own. They say a marriage with MCI WorldCom would give Esrey a deep-pocketed partner to take on AT&T.;
Any deal between the two carriers would face tough scrutiny from regulators and investors. Such a combination would likely force the divestiture of Sprint’s Internet business in order to win regulatory approval.
In addition, some analysts believe MCI WorldCom has its hands full trying to integrate the many networks acquired through more than 60 mergers in the last decade, and thus might want to sell off the overlapping long-distance network that it would inherit in a Sprint deal.
Deutsche Telecom and France Telecom, which each own a 10% stake in Sprint through their money-losing Global One venture, hold just two board seats and would not be able to block a sale to MCI WorldCom.
Some analysts say news of MCI WorldCom’s renewed interest in Sprint could spark serious offers from other carriers, either a regional Baby Bell company such as BellSouth or from Deutsche Telecom or another overseas player.
“If this speculation starts to get legs, then I think there will be a bidding war for Sprint,” said Ken McGee, a research fellow at the Gartner Group.
In June, Ebbers said the company wasn’t in talks with Sprint because regulators wouldn’t look kindly on a union. Approval of such a combination likely would not come until some regional Baby Bell phone companies break into the long-distance market, he said.
MCI WorldCom had been focused primarily on business customers, who buy multiple services and are more profitable than consumers.
That strategy changed a year ago, when Ebbers completed his biggest purchase yet, the $47-billion acquisition of MCI, the No. 2 U.S. long-distance company with more than $30 billion in annual sales. At the time, it was the largest acquisition in telecommunications.
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Flirting Phone Companies
MCI WorldCom Inc. and Sprint Corp. are the second-and third-largest U.S. long-distance carriers. A look at each company.
MCI WorldCom
1999 sales: $17.7 billion
1998 earnings: -$2.7 billion
Employees: 77,000
Customers: 20 million
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Sprint
1999 sales: $16.0 billion
1998 earnings: $1.54 billion
Employees: 64,900
Customers: 17 million
Source: Hoover’s Inc.
