FCC Approves WorldCom Acquisition of Intermedia

WorldCom(WCOM Quote - Cramer on WCOM - Stock Picks) has won Federal Communications Commission approval for its purchase of Intermedia Communications(ICIX Quote - Cramer on ICIX - Stock Picks), but the deal presents more challenges for one of the nation's largest long-distance telephone companies.

So far, the Clinton, Miss., company received antitrust clearance from the Justice Department on the condition that it sells the remaining Intermedia business operations and assets, which includes voice and data telecom services, as well as local and long-distance telephone service.

However, WorldCom's purchase of Intermedia includes a controlling stake in Digex(DIGX Quote - Cramer on DIGX - Stock Picks), a Web hosting services provider and a unit of Intermedia. Digex minority shareholders recently sued five Digex company directors, WorldCom and Intermedia in an effort to block the merger. They say there are questions as to whether the companies acted improperly when they supported Intermedia's proposed merger with WorldCom by waiving the legal rights of the Digex minority shareholders.

Digex's minority shareholders claim that instead of offering Digex as a merger partner to WorldCom, which wanted its Web-hosting assets last summer, Intermedia substituted as the merger partner in order to give WorldCom control of Digex at a lower cost. They also say the deal will help impoverished Intermedia and benefit its officers and directors, who own stock in the company.

WorldCom's purchase of Intermedia would give the telecommunications company a 55% equity stake and 94% voting stake in Digex. The case is set to go to trial this May in a Delaware Chancery Court.