BREAKFAST WITH THE FOOL
Friday, September 24, 1999
"Strong people always have strong weaknesses."
-- Peter Drucker
MCI WorldCom and Sprint Ready to Dance?
Richard McCaffery (TMF Gibson)
MCI WorldCom (Nasdaq: WCOM) and Sprint (NYSE: FON) have been discussing a merger that would team the country's second and third largest long distance companies in a deal that could give AT&T (NYSE: T) a run for its money, The Wall Street Journal reported today.
The merger would give Sprint the partner it needs to expand internationally, while MCI WorldCom would reportedly acquire Sprint's valuable cellular network, Sprint PCS (NYSE: PCS).
Sprint PCS has more than 3.9 million subscribers in over 225 U.S. cities. The Journal article stressed that no deal is imminent, and the companies declined comment.
Such a merger would be par for the course for MCI WorldCom. In 1997, Bernard Ebbers, MCI WorldCom's president and chief executive, stepped in and paid $40 billion to buy MCI when the company had already accepted an offer from British Telecommunications (NYSE: BTY). Since 1983, WorldCom has grown into nearly a $150 billion company through a series of 65 mergers and acquisitions.
But wait. The New York Times reported yesterday that Sprint is discussing a sale of its assets to telecom giant Deutsche Telecom (NYSE: DT), which already owns 10% of the $44 billion company. The Times also reported that talks have gone from hot to cold.
Sprint's stock closed down $3 5/16 yesterday at $51 1/8 on news that talks with Deutsche Telecom had stalled. But the stock has performed well this year. Over the last 12 months, Sprint is up nearly 50%, adjusting for a two-for-one split in June. It's been a solid performer over time as well, logging a five-year annual return of 30.1%.
Telecom investors drive on the freeway, so they must be used to whiplash by now -- due to endless mergers and partnerships. To which the Fool can add but one point, which David Gardner summed up nicely in his recent Rule Breaker article, "Consolidate to Dominate": "The Motley Fool approach to investing never involves speculation about buyouts or mergers."
Instead, the Fool philosophy is based on the same bedrock foundation all great investors have stood upon: Buy great companies and hold on.
News to Go
Software giant Microsoft (Nasdaq: MSFT) is moving forward with a plan to take its Internet travel service, Expedia, public in a move expected to raise $75 million, The Wall Street Journal reported.
Natural foods and nutritional products grocer Whole Foods Market (Nasdaq: WFMI) announced a plan to form an Internet unit called WholePeople.com through the merger of its Amrion and WholeFoods.com subsidiaries. The unit will eventually be spun off as a publicly traded company.
Bill Harris, the chief executive officer of financial software maker Intuit (Nasdaq: INTU), has resigned and will be replaced on an interim basis by former chief executive and current chairman Bill Campbell.
Purina pet food and Energizer battery maker Ralston Purina (NYSE: RAL) has nearly finished buying back eight million shares of common stock, and has approved a plan to purchase another eight million as market conditions permit.
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