WorldCom, Sprint Deal Disconnected
- By Simon Romero
- Jul. 15 2000 00:00
New York -- WorldCom Inc. and the Sprint Corp. officially abandoned their $115 billion merger Thursday, bowing to pressure from regulators, who were concerned that the creation of such a large telecommunications company would stifle competition.
Far from dampening the outlook for ever-larger communications concerns, the dissolution of the agreement, which had been expected for several days, fueled speculation about consolidation among large telecommunications companies.
Both WorldCom and Sprint were mentioned as potential takeover targets, with British Telecommunications and Nippon Telegraph and Telephone reported to be in talks with WorldCom. Sprint, meanwhile, was said to be considering an overture made by Deutsche Telekom.
Shares in WorldCom rose to their highest level in more than four months, up $3.4375 at $47.9375, while Sprint rose 68.75 cents to $48.
While the companies mentioned in the reports played down speculation that they were negotiating or declined to comment, analysts were quickly redrawing the possible map of the U.S. telecommunications industry.
"If anything, acquisition intensity is sure to grow," said Sajai Krishnan, a partner in the San Francisco office of Booz Allen & Hamilton, a consulting firm. "It's clear that in today's world you need to have control of the entire network."
WorldCom would have moved closer to that vision had it succeeded in acquiring Sprint, which is coveted for its fast-growing wireless unit and its capability of handling large amounts of data over its Internet network. WorldCom grew through more than 70 takeovers during the last several years.
Regulators in both the United States and Europe, though, opposed the Sprint deal as they became wary of the effect the merged enterprises might have on the market for long-distance services.
"Why regulators were pushed out of their comfort zone on this particular deal will probably seem strange a year or two from now," said Jeffrey Kagan, an independent telecommunications analyst.
To be sure, having WorldCom, the No. 2 long-distance telephone company behind AT&T, acquire the No. 3 long-distance company, Sprint, was a hard pill for regulators to swallow.
But their views could change as more phone companies start offering long-distance services nationwide, as Verizon has done in New York and SBC Communications has done in Texas. These moves are expected to increase competition and lower long-distance charges for consumers in many markets.
In the meantime, much of the consolidation in the telecoms industry is expected to be concentrated not on long distance, which is becoming stagnant, but in faster-growing areas like wireless and data or broadband transmission services.
Companies like Qwest Communications International or Williams Communications could be seen as targets for WorldCom because of the potential they have for increasing the capacity for high-speed data transmission or wireless services, said Andrew Hamerling, a telecommunications analyst with Bank of America Securities.