WorldCom up, Sprint Down as Deal Unravels

WorldCom Inc. rose 12% and Sprint Corp. fell 9.6% after analysts said they expect WorldCom’s planned $129-billion acquisition of its long-distance rival will collapse amid regulatory opposition.

Shares of WorldCom rose $4.88 to close at $44.56 on the Nasdaq Stock Market. It was the second most-active issue in U.S. trading, with 92.06 million shares changing hands. Sprint, based in Westwood, Kan., fell $5.58 to close at $52.79 in New York Stock Exchange trading of 12.82 million shares.

The Justice Department this week sued to block the transaction, charging that it threatened competition for long-distance, corporate telecommunications networks and Internet backbone services. On Wednesday, the European Commission blocked the planned merger because of competition concerns.

The companies are publicly stating they are examining options. But regulatory opposition is seen killing the companies’ agreement, as they are not inclined to wage a court battle with the government, people familiar with the situation told Bloomberg News.

A key factor would be timing of a court hearing, company officials have said. Government lawyers told both sides that the Justice Department wouldn’t be ready for trial until next year, though the merger agreement expires Dec. 31, the people said. A decision to abandon the transaction would void a $2.5-billion breakup fee, which would be paid by either company if another suitor broke up the combination.

The lawsuit “effectively means the deal will not go through,” CIBC World Markets Corp.’s Tim Horan wrote in a report. He rates Clinton, Miss.-based WorldCom a “strong buy” but added that he would likely downgrade the stock if the company tried to buy a U.S. or overseas wireless company.

Salomon Smith Barney Inc.’s Jack Grubman, the top-ranked telecommunications analyst according to Institutional Investor magazine’s annual survey, strongly reiterated his “buy” rating on WorldCom shares.