WorldCom Inc. had to settle for its second choice of global phone companies when it made a $30 billion bid for MCI Communications Corp. this morning. Its first choice? AT&T Corp., market cap $71 billion.
That was the half-joking assertion of a supremely confident Bernard Ebbers, the rapier-wit president and chief executive officer of WorldCom, who placed "100 percent" odds on the successful completion of a deal for MCI.
"We're going to see this through," Ebbers insisted at a packed press conference at Manhattan's Pierre Hotel - in a room one flight up from the suite where he announced WorldCom's $14 billion acquisition of MFS Communications Co. Inc. in August 1996. "This is not a joking matter."
Fresh from agreed acquisitions of competitive local exchange carrier Brooks Fiber Properties and the Internet backbone networks of CompuServe Inc. and America Online Inc., WorldCom made an unsolicited $30 billion bid for MCI Communications Corp., topping by $9 billion British Telecommunications PLC's (BT's) bid for the U.S. long distance company.
WorldCom's executives said a merger with MCI, combined with the Brooks deal, would create a U.S. local and long-distance voice and data powerhouse, with local service to 92 cities and 84 giant circuit switches and coverage of 70 percent of the U.S. business market. Ebbers said MCI has "similar genes" to the hyper-aggressive WorldCom in its "heritage, assets, growth potential and entrepreneurial spirit." He said he did not expect major layoffs to result from the merger.
The bid was accompanied by an early morning phone call from Ebbers to Bert Roberts, MCI's CEO. Ebbers described the 8:30 a.m. call as "cordial" but said MCI did not make a formal response to his offer.
MCI issued a 31-word statement and declined further comment. "MCI confirmed today that it had received an unsolicited offer from WorldCom Inc. MCI indicated that its board of directors would meet in due course to review all issues and options."
BT issued a 15-word statement and declined further comment. "We have received the material made public today and are considering the issues it raises," the company said from its London headquarters.
The proposed WorldCom deal includes $5 billion in assumed debt and calls for MCI shareholders to receive between 1.04 shares and 1.22 shares of WorldCom stock for each MCI share they own. The $41.50-per-share merger, if completed, would be the largest merger in U.S. history - about $8 billion larger than leverage buyout firm Kohlberg Kravis Roberts & Co.'s $26.4 billion 1989 acquisition of RJR Nabisco Inc.
The WorldCom offer comes a month after BT cut its $33 billion offer for MCI by $5 billion after wider-than-expected losses at MCI's local phone operations. It also comes at the same time as WorldCom's announcement of a $2.9 billion deal to acquire Brooks and is only the latest in a decade-long string of acquisitions for Jackson, Miss.-based WorldCom, founded as LDDS WorldCom Inc. amid the Bell System breakup in a plan hatched at a Jackson, Miss., coffee shop. WorldCom has completed 40 merger and acquisition transactions in the past five years.
WorldCom's Chief Financial Officer, Scott Sullivan, said the deal would add as much as 22 percent to its earnings in the first year after the merger is completed, with savings of $2.5 billion through synergies such as combining networks and cutting corporate overhead; savings would rise to $5 billion by the fifth year.
James Allen, Brooks' vice chairman and CEO, said he agreed to the deal because of a chance to own WorldCom's high-octane stock; its share price has doubled in the past year, and shares worth $100 at its 1989 initial public offering are now worth $3,100. Ebbers noted that a similar investment in MCI would be worth only $132.