In a deal that creates at one blow a globally dominant Internet traffic carrier, Wall Street darling WorldCom Inc. acquired the world’s No. 2 telephony company, MCI Corp., in what is being called the largest corporate takeover in history, valued at more than $37 billion.
MCI’s board of directors accepted the recently sweetened offer (from $41 to $50 a share of MCI common stock) late Sunday night after giving its two other corporate suitors — GTE Corp. and British Telecommunications — a chance to match or exceed the bid, which British Telecom apparently passed on. GTE’s board apparently made a new, all-cash offer of $45 a share during last weekend, but the $8 billion-plus gap between the deals (even though WorldCom’s is all-stock) sealed GTE’s fate.
The deal was widely broadcast on Wall Street, where MCI and WorldCom stock ran one-two in terms of number of shares changing hands on the NASDAQ exchange Monday. (MCI closed sharply up, $4.875 to end the day at $41.75 a share, while WorldCom eased down slightly, losing $1.75 to close at $31.375.)
According to Securities Data Co., the deal is the largest corporate takeover ever, eclipsing the $35.5 billion paid by Mitsubishi Bank Ltd. for the Bank of Tokyo Ltd. in 1996.
The combined entity, to be called MCI WorldCom, will still be only the No. 2 player in the telephony/telecommunications field, however; with a combined sales volume of just over $30 billion annually, it is still considerably smaller than market leader AT&T, which had 1996 sales of more than $52 billion.
In the rapidly expanding Internet provider and “backbone” businesses, however, MCI WorldCom need not take a back seat to anyone.
Given WorldCom’s recent deal-making, which increased its share of those businesses to nearly 40% of existing global capacity, the new combined outfit will control nearly 70% of the Internet’s “backbone” (meaning its high-speed, fiber-optic connection lines between servers hosting Internet sites) and more than half of the Internet service-provider (ISP) connection business.
Given those numbers, it’s not unexpected that the newly activist Dept. of Justice’s antitrust division will be giving the deal what Washington sources are calling “much more than the usual scrutiny.”