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WorldCom Gets OK to Acquire Intermedia

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From Bloomberg News

WorldCom Inc.’s planned acquisition of Intermedia Communications Inc. can proceed, but the No. 2 U.S. long-distance provider may face as much as $2.5 billion in damage claims from shareholders of Intermedia’s Digex Inc. unit, a judge ruled.

Delaware Chancery Court Judge William B. Chandler III refused to block WorldCom’s $1-billion bid for Intermedia, a provider of telephone and Internet services to businesses. The stock deal was valued at $3 billion when it was announced in September. WorldCom also would assume $3 billion in debt in the deal.

WorldCom officials want to acquire Intermedia to take control of Digex, which manages Web sites for companies such as Sony Corp. and Ford Motor Co.

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Chandler concluded, however, that Intermedia executives serving on Digex’s board may have violated their legal duties to shareholders by waiving anti-takeover defenses to smooth the path for WorldCom’s acquisition. That means WorldCom may be liable for $2.5 billion in damages to Digex shareholders, who favored a $120-per-share bid for the Web-hosting company.

The Intermedia purchase would give WorldCom control of Digex, which would offset declining telephone rates. Intermedia, which operates phone and Internet services, needs the transaction because it’s running out of cash.

But Digex shareholders are upset that Intermedia officials rejected offers from other suitors.

They contend that Intermedia executives also serving on Digex’s board weren’t looking out for investors’ best interests.

They voted to waive some of Digex’s anti-takeover defenses to help the WorldCom bid proceed and then misled so-called independent directors about the benefits of the WorldCom offer, lawyers for Digex investors argued in court.

Intermedia’s lawyers countered that company officials evaluated the other offers and found WorldCom’s bid to be superior.

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WorldCom already has overcome Justice Department antitrust concerns about its Intermedia bid.

WorldCom officials agreed this year to sell all of Intermedia’s assets except Digex under a settlement with the Justice Department.

Shares of Clinton, Miss.-based WorldCom rose 56 cents to close at $18.19, and Tampa, Fla.-based Intermedia shares rose 6 cents to close at $12.25. Shares of Beltsville, Md.-based Digex jumped $3.19 to close at $29.25. All three companies trade on Nasdaq.

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