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Tuesday, October 5, 1999

"I not only use all the brains I have, but all I can borrow."
-- Woodrow Wilson

MCI WorldCom and Sprint Merge to Form WorldCom

By Richard McCaffery (TMF Gibson)

MCI WorldCom (Nasdaq: WCOM) and Sprint (NYSE: FON) have come to terms on a $129 billion stock and debt merger agreement that teams the country's second and third largest long distance phone carriers in a shoulder-to-shoulder battle against market leader AT&T (NYSE: T).

Under terms of the agreement, said to be the largest in corporate history, each share of Sprint's FON stock will be exchanged for $76 worth of MCI WorldCom common stock, a sweet 33% premium over Sprint's closing price yesterday of $57. MCI WorldCom apparently boosted its offering price after BellSouth (NYSE: BLS) reportedly tried to sweep in and nab the Westwood, Kansas company.

The deal teams Sprint with MCI WorldCom, a company that's grown by leaps and bounds under President and Chief Executive Bernard Ebbers. Ebbers built the company into a powerhouse long distance carrier through a series of blockbuster acquisitions including his $40 billion, last-second bid for MCI, which he snatched away from British Telecommunications (NYSE: BTY) in 1997. (At the time, $40 billion seemed like a lot of money.)

In return, MCI WorldCom gets Sprint's valuable and fast-growing cellular network, Sprint PCS (NYSE: PCS). The new company will be called WorldCom and expects pro forma 1999 revenue in excess of $50 billion. The company will offer a range of bundled services including voice, data, video, and high-speed Internet access services to better compete with similar offerings from well-heeled companies like AT&T, BellSouth, Bell Atlantic (NYSE: BEL), and others.

MCI WorldCom and Sprint will have about 30% market share in the $80 billion annual U.S. market for long distance service, compared to AT&T's 48%, Bloomberg reported.

Shareholders should be especially interested in Ebber's belief that the merger will save money. He expects annual operating cost savings of $1.9 billion in 2001 -- the first full year of operation as a combined company -- and he expects it to grow to $3 billion by 2004. The savings should come from better use of the company's combined networks and other operational savings. He also expects to save $1.3 billion annually from economies of scale and procurement efficiencies.

Historically, Ebbers has been a guy who's made mergers and acquisitions work to the benefit of shareholders. At MCI WorldCom, he's been able to maintain high operating margins and keep sales, general, and administrative costs under control as he grew the company into the nation's second largest long distance phone carrier.

News to Go

Commercial financial services company Heller Financial (NYSE: HF) is selling its Commercial Services unit to diversified finance organization CIT Group (NYSE: CIT) for $560 million.

Data storage device manufacturer Iomega (NYSE: IOM) plans to lay off 140 workers and take a pretax charge of $25 million to $30 million to help cut costs and return to profitability.

Pharmaceutical giant Merck (NYSE: MRK) won exclusive patent rights covering its acute pain medication drug Vioxx from the U.S. Patent and Trademark Office.

Aerospace and defense company Boeing (NYSE: BA) won a contract worth more than $2 billion to supply DHL Worldwide Express with 44 used aircraft, The Wall Street Journal reported.

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