WorldCom, Sprint Merger Said to Be in Jeopardy
Speculation mounted Wednesday that U.S. and European regulators may block the $120-billion merger of WorldCom Inc. and Sprint Corp., pushing shares of the long-distance telephone companies lower.
The companies remain in intense negotiations with regulators and still could find a compromise that allows the deal to proceed without squashing competition, sources familiar with the situation said.
Regulatory officials have expressed concerns that the deal combining the No. 2 and No. 3 U.S. long-distance companies could harm competition in the Internet and long-distance telephone markets.
U.S. regulators are expected to weigh in on the deal by early next week at the latest, sources said.
The European Commission, meanwhile, is due to consult experts from the 15 EU states today and a final decision is likely to be taken by the full 20-member commission at its weekly meeting July 5.
The Washington Post reported that the European Union’s antitrust watchdog would veto the merger amid repeated concerns voiced by EU Competition Commissioner Mario Monti over the Internet implications of the deal.
But sources at the European Commission cast doubts on the report, saying it was premature to discuss the death of the deal.
Asked whether the merger was set to be blocked, a senior EU source told Reuters, “Not necessarily, but we do have problems.”
Commission spokeswoman Amelia Torres added, “It would be premature to speculate on what the commission will decide.”
Shares of Clinton, Miss.-based WorldCom closed at $40.31, down $1.38 on the New York Stock Exchange. Westwood, Kan.-based Sprint slid $1.13 to $59 in Nasdaq trading.
Because the companies already agreed to sell Sprint’s Internet backbone, negotiations with regulators now center on possible remedies on the long-distance side, sources said.
The companies have weighed options ranging from selling long-distance customers and even the MCI or Sprint brand name, to selling actual long-distance telephone networks, WorldCom executives previously said.
WorldCom has expressed its willingness to shed Sprint’s long-distance networks and customers, as well as the Internet business, because its main motivation for the deal had always been Sprint’s wireless business, sources said.
“All WorldCom ever wanted was wireless. The rest was gravy,” said one source, who declined to be named.
By selling the brand name, customers and networks--rather than just a customer list--the two companies could argue that the divested assets could be transformed into a viable competitor in the hands of a new owner, analysts said.
Some analysts, however, cautioned that separating the long-distance businesses may be complicated. The divestiture also would reduce the savings the two companies had hoped to gain by merging.
“Basically, they’re paying $120 billion for a wireless business, which is kind of funny when you think that they said Nextel was too expensive and that was a fraction of the cost,” said one industry analyst who declined to be named.
WorldCom last year aborted merger talks with wireless telephone company Nextel Communications Inc. because of a disagreement on price and concerns about the quality of Nextel’s network and its high debt load.
The Financial Times reported that Sprint’s Internet and long-distance assets could fetch up to $45 billion.
Some industry analysts, however, said that price tag was too high because a buyer would have leverage to negotiate a good deal as WorldCom would be forced to sell.
While the media has essentially written an obituary for the deal, an industry source told Reuters that hope was not lost.
“[MCI WorldCom] think they can cut a deal with the [U.S.] Department of Justice, and therefore avert problems with the EU,” the source said. “It is looking at all options in terms of finessing things.”
Any veto would be a huge blow to Bernie Ebbers, the colorful chairman of WorldCom, who analysts say had planned to complete the Sprint deal in about a year before looking at potential European investments.
European regulatory clearance appears to hinge on whether Ebbers will shed UUNET, MCI WorldCom’s prized Internet unit, in return for approval to buy America’s third-biggest long-distance carrier.
Ebbers, however, told shareholders at the company’s annual meeting that he would rather walk away from Sprint than sell UUNET.
The EU’s Monti has hinted on a number of occasions that he would take a tough line with the companies and that they had not moved far enough to satisfy his competition concerns.
