Sprint, based in Overland Park, has long been considered a takeover target in the rapidly consolidating telecom business.
J-W Wire Reports
New York -- MCI WorldCom Inc. and Sprint Corp. are in talks on a potential merger that would combine the No. 2 and No. 3 U.S. long distance telephone companies to create a powerful rival to industry leader AT&T Corp., industry sources said Friday.
A combined MCI WorldCom-Sprint would control about 32 percent of the long distance phone market -- still well short of the 60 percent of the market controlled by AT&T. A deal also would give MCI WorldCom, which lacks wireless phone operations, access to Sprint PCS, Sprint's national wireless business.
While the deal would have strong strategic merits, it may be difficult to complete because of potential regulatory scrutiny of the combined companies' power in the long distance and Internet markets, as well as fears that the acquisition may dampen MCI WorldCom's profits, analysts and traders said.
MCI WorldCom and Sprint had been in informal discussions for some time, but negotiations intensified as Bell Atlantic Corp. and Vodafone AirTouch Plc forged their recent wireless telephone joint venture, sources said. That venture, which will create the largest U.S. wireless carrier, underscored the industry's growing interest in the lucrative wireless market.
MCI WorldCom and Sprint declined to comment. Shares of Clinton, Miss.-based MCI WorldCom fell 3-1/2 to 75 on Nasdaq, while shares of Overland Park-based Sprint jumped 2-15/16 to 54 on the New York Stock Exchange.
Based on current market prices, Sprint's core business is valued at $47 billion, while its Sprint PCS business is valued at another $32 billion. MCI WorldCom's market capitalization is more than $140 billion.
"It could mean 10 percent dilution on EPS (earnings per share)," said one arbitrageur who declined to be named. "Strategically it's a very good deal, but the probability of a deal happening is less than 50 percent because (Sprint Chairman William) Esrey's not going to sell cheap and because of the regulatory issues."
The talks with Sprint mark the third time this year that MCI WorldCom has flirted with a major wireless carrier. Earlier this year, MCI WorldCom had been in talks to buy wireless carrier Nextel Communications Inc. but discussions broke down over price and Nextel's large debt load.
MCI WorldCom also briefly considered entering the bidding war for San Francisco-based AirTouch but never made a formal offer. Britain's Vodafone completed its acquisition of AirTouch in June.
The MCI WorldCom-Sprint merger talks further complicate the morass of issues surrounding based Sprint's future.
Sprint, long seen as a prime takeover target, has been working to restructure its money-losing international joint venture with Deutsche Telekom AG and France Telecom. Sprint also held talks to merge with Deutsche Telekom, but the discussions recently cooled, media reports said.
France Telecom and Deutsche Telekom, which each own 10 percent of Sprint, could not block the sale of Sprint to a new company, Sprint said. In such a deal, the foreign partners would be treated like any other shareholders.
No comments
Commenting is turned off for this story.