WorldCom and Sprint Call Off Merger
WorldCom Inc. and Sprint Corp. officially dissolved their $129-billion merger deal Thursday, acknowledging that legal challenges from the Justice Department and the European Union effectively doomed the deal.
Ten months after the chief executives for the two companies stood in a Manhattan hotel ballroom to announce what would then have been the largest telecommunications merger in history, WorldCom and Sprint parted ways with only a perfunctory news release.
Still, that formality is expected to kick off another wave of blockbuster deals. Deutsche Telekom, the German national carrier, is shopping for a major purchase in the United States and has expressed interest in Sprint. France Telecom, British Telecom and BellSouth Corp. also are rumored to be on the prowl.
But in an interview Thursday, Sprint Chief Executive William T. Esrey sought to quiet the frenzy of speculation, saying that his company is focused on a future as a stand-alone company and is under no compulsion to grow through another deal.
“Sprint is not for sale,” he said. “We did not do the WorldCom deal because we thought we couldn’t do this, or couldn’t do that. That’s all baloney. We did the WorldCom deal because we thought it was an opportunity to do an even better job.”
Of course, Esrey acknowledged, if another company arrives with a substantial offer, Sprint will seriously consider it. But, in what could be an ominous sign for Deutsche Telekom, whose anticipated move has already provoked concern on Capitol Hill, Esrey said Sprint has no appetite for another difficult deal.
“It better not have regulatory problems, because we’ve been there,” he said. “It was a very frustrating, disappointing experience.”
Even before the WorldCom-Sprint deal officially became history, Wall Street was buzzing with rumors of what new mergers the aborted blockbuster would spawn. Thursday, such talk intensified.
One published report from Europe suggested that British Telecom had already made a play for WorldCom, offering to pay roughly twice the company’s current market value, with WorldCom holding out for even more. Reuters, though, quoted an industry source who called it “complete rubbish,” and British Telecom denied the rumor.
But as the market digested a pervasive sense that some enormous combination is essentially inevitable, with Sprint and WorldCom central to the mix, investors cheered. Clinton, Miss.-based WorldCom added $3.44, or nearly 8%, to close at $47.94 on Nasdaq. Westwood, Kan.-based Sprint added $1 to close at $48 on the New York Stock Exchange.
Separate or fused, the two companies clearly boast formidable assets, as their chief executives stressed. WorldCom is the nation’s second-largest long-distance company and owns the leading global Internet network. Sprint is the third-largest long-distance player and has a fast-growing national wireless business, the franchise that enticed WorldCom most.
“We’re back taking stock of where we are,” Esrey said. “We believe we can grow at 20% a year, year after year. There aren’t many $20 billion-plus revenue companies that can look at that kind of growth.”
But the same attributes that now give the companies solace ultimately torpedoed their deal. The Justice Department challenged the merger as an unacceptable blow to long-distance telephone competition. The European Union shot it down on the grounds that it would have handed WorldCom too much control over Internet traffic.
The companies argued that so many new entrants are flooding the telecommunications world and technology is changing so rapidly that their deal would not have harmed competition. Indeed, they portrayed the merger as a boon to consumers, promising to use wireless technologies to roll out local telephone and Internet service, taking on the Bell companies.
The regulators didn’t buy it. On Thursday, WorldCom Chief Executive Bernard J. Ebbers took a parting shot, particularly at Federal Communications Chairman William E. Kennard, who voiced the first warnings, and Justice Department antitrust chief Joel I. Klein.
“The benefits of this merger were clear and compelling,” Ebbers said. “Opposition to this merger just adds to the list of Kennard-Klein policies that ultimately will reduce innovation and choice, and raise the cost of telephone services, for residential customers, particularly those in rural America.”
Klein welcomed news of the dissolution.
“The merger would have led to higher prices, lower service quality and less innovation,” he said. “America’s consumers and businesses will continue to reap the benefits of competition.”
