Even though Sprint Chief Executive William Esrey and MCI WorldCom CEO Bernard Ebbers first started speaking about an alliance this summer, when MCI WorldCom was considering a purchase of Nextel, it's clear that the parties still have plenty of issues to address before the deal closes.
During a press conference earlier today, the two CEOs painted a rosy picture of the combined company's future, but they confirmed that some important areas simply hadn't been addressed yet.
Despite its huge size, the newly merged Sprint and MCI WorldCom will show revenue growth of 20 percent per year, said Ebbers, who will become president and CEO of the combined company. The new company, to be called simply WorldCom, will have revenue of about $50 billion. And although Ebbers said the merger would create some redundancies in staffing, he wouldn't say that layoffs were imminent. In the short term, some areas may be overstaffed. "Is it better to grow into those employees," Ebbers asked rhetorically, or to lay them off only to attempt to rehire them into other areas of the business?
As for the Sprint and MCI brand names, Ebbers said "both brands will be extensively used," but no more exact determination had been made. "There's a tremendous amount of equity in these names, and we'd be foolhardy not to use that," he added. But he couldn't say which positioning - low cost, high quality - either brand would eventually receive.
Although Esrey will hold the title of chairman of the combined company, Ebbers will remain president and CEO. In response to a question about how the two would work together, Ebbers said: "We will be working very effectively together." There was no discussion of areas of responsibility, leading to speculation that Esrey won't stay on board long. Esrey will receive about $470 million in severance and stock options that will vest because of the acquisition, according to a Sprint proxy statement.
The companies already have worked out a few areas where they can cooperate immediately. MCI WorldCom will become a reseller of Sprint's personal communications services. And internationally, Sprint will be transitioning off of the Global One platform and using WorldCom instead.
Ebbers also hinted that consumers wouldn't see further price reductions until companies such as WorldCom were able to package more services together. So far, Ebbers claimed, price cuts for long-distance have come from reductions in access charges.
"You cannot look at just long-distance," Ebbers said. "Some of the technology that provides broadband into the home does not distinguish a long-distance from a local call. People are going to buy packages for probably a flat rate per month."
If completed, the Sprint-WorldCom merger would be the largest ever, worth approximately $115 million. Each Sprint share will be exchanged for $76 of MCI WorldCom common stock, subject to a collar. Each share of Sprint PCS Group, a tracking stock, will be exchanged for a share of a newly created WorldCom tracking stock and 0.1547 shares of MCI WorldCom. The board of directors will have 10 members from MCI WorldCom and six from Sprint.