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Bidding wars turn scrappy MCI into hottest merger prospect ever

MCI Communications Corp., once a scrappy underdog to Ma Bell, is suddenly the hottest merger prospect in business history.

GTE Corp. on Wednesday offered to buy MCI for $28 billion in what would be the largest all-cash deal ever - topping RJR Nabisco Inc.'s $25 billion sale in 1989. The unsolicited bid intensifies pressure on WorldCom, which offered $30 billion in stock for MCI two weeks ago. The bid seemed to sound the death knell for a $21 billion offer from reluctant suitor British Telecom.The warring bids may seem lavish for MCI, which grew from a startup mobile radio company more than three decades ago to become the fiercest challenger to AT&T Corp.'s once-solid monopoly on long-distance phone service.

But MCI's sudden attention points as much to the quirks of merger negotiations as to the company's unique position in a business that has undergone enormous regulatory and technological changes these past two years.

A federal law intended to force more competition in telecommunications has touched off a spate of attempts by the industry's biggest players - not all successful - to buy their way into each other's businesses. MCI, more than other players, is in a unique position to take advantage of those changes, particularly new opportunities in local markets.

The second-largest long-distance company has been spending billions to build local networks of fiber-optic cable to handle calls in more than two dozen cities so far. That contrasts with plans by No. 3 long-distance company Sprint and AT&T to lease lines from local phone companies and then resell them to customers.

MCI also is a leader in selling long-distance service to large companies and currently gets more than half of its revenue from big businesses.

That has made MCI enormously attractive to companies such as GTE, a hybrid local and long-distance company, and WorldCom, the No. 4 long-distance company. Both are attempting to expand into a range of communications businesses to take advantage of the regulatory reform.

MCI's stock, which rose more than 4 percent on Wednesday as word of an offer circulated, was up another 4 percent Thursday. GTE shares were off more than 5 percent.