WorldCom, Sprint Officially Terminate Merger

WorldCom (WCOM) and Sprint (FON) have officially terminated their $115 billion merger because the deal failed to meet regulatory scrutiny in both the U.S. and Europe.

The move frees up both companies to speak with a bevy of potential new partners.

Shares of WorldCom rose 1 1/2, or 3%, to 46 in early trading, according to Instinet, while shares of Sprint were up 15/16, or 2%, at 47 151/6.

The termination was hardly shocking, becoming more inexorable by the day after the U.S. Justice Department filed suit on June 27 to block the deal on antitrust grounds. The No. 2 and No. 3 long-distance operators in the U.S. subsequently withdrew their merger plans. The European Commission rejected the merger the next day.

"We very much regret that our merger with Sprint was not allowed to proceed. The benefits of this merger were clear and compelling," said Bernard Ebbers, president and chief executive of WorldCom, in a statement.

Referring to William Kennard, head of the Federal Communications Commission, and Joel Klein, the Justice Department's chief antitrust regulator, he continued, "Opposition to this merger just adds to the list of Kennard-Klein policies that ultimately will reduce innovation and choice, and raise the cost of telephone services, for residential customers, particularly those in rural America."

With the union officially canceled, WorldCom, based in Clinton, Miss., and Sprint, based in Westwood, Kan., are now casting about for new merger partners. WorldCom may look to the domestic wireless market or into an agreement with either local phone giant BellSouth (BLS) or business communications provider NextLink Communications (NXLK).

For its part, Sprint has long been bandied about as a takeover target for a European phone giant, perhaps Deutsche Telekom (DT), France Telecom (FTE) or British Telecom (BTY).

Regulatory concerns on both sides of the Atlantic brought the deal down. The Justice Department contended that the merger would hurt competition and raise prices for a host of telecommunications services, from long-distance and international phone rates to data transmission and Internet fees.

Both Attorney General Janet Reno and Klein said that approving the deal would be akin to returning to the days when AT&T (T) had a monopoly, which was broken up in the 1980s.

European regulators were especially fearful that the deal would impede competition in the market for high-speed Internet access. WorldCom is the world's leading provider of Internet connections and Sprint is one of its main competitors.

A deal would have solidified WorldCom's place as the second-largest long-distance operator in the U.S., behind AT&T.

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