WorldCom Inc., the nation's fourth largest long-distance telephone company, said Monday it has agreed to pay about $14 billion in stock for MFS Communications Co. in a blockbuster telecommunications deal.
The new company will provide a single source for local, long distance, Internet and international communications services competing with telecommunications providers such as AT&T Corp., MCI, Sprint and the former Bell System companies.The pact follows the enactment earlier this year of federal legislation aimed at opening local phone markets to competition, setting off a scramble among phone companies to get an edge on the industry.
The deal, unanimously approved by the boards of both companies, calls for each share of MFS stock to be exchanged for 2.1 shares of WorldCom stock.
The offer is valued at about $55.39 a share for each MFS share based on WorldCom's closing price of $26.371/2 on Friday on the Nasdaq Stock Market.
That represents a 59 percent premium for each MFS share. MFS closed at $34.871/2 a share Friday in Nasdaq trading.
The new company will be known as MFS WorldCom and will have annual revenue of about $5.4 billion with more than 500,000 business customers throughout North America.
WorldCom is based in Jackson, Miss., and is a major long-distance telecommunications company offering voice, data and video products and other services to the business and residential markets.
MFS, based in Omaha, Neb., provides business and government phone service. It recently agreed to acquire UUNET Technologies Inc., an Internet provider for businesses.
James Q. Crowe, chairman and chief executive of MFS, will be chairman of the new company. Bernard J. Ebbers, president and chief executive of WorldCom, will be president and chief executive.
WorldCom will have one more director than MFS on the new company's board.
Ebbers said the deal unites "the premier growth companies from key segments" of the telecommunications industry.
"We are creating the first company since the breakup of AT&T to bundle together local and long distance services carried over an international end-to-end fiber network owned and controlled by a single company," he said.
He said the companies expect to save money by connecting World-Com's long-distance networks to MFS's city networks, avoiding line and access costs that others must pay. It will also eliminate duplicated capital spending that the companies otherwise would have incurred.
The companies expect to complete the merger within four to eight months. It is subject to approval by the shareholders of both companies and federal and state regulatory approval.
The deal is the third major combination in the industry announced since the enactment of the new telecommunications law earlier this year.
The other deals involved former Bell System companies. Bell Atlantic agreed to combine with Nynex Corp. in an exchange of stock valued at $22.7 billion, and SBC Communications Inc., formerly Southwestern Bell, agreed to buy Pacific Telesis Group for $16.7 billion in stock.