solidified its agreement to merge with
Monday and said it would now buy
, a closely held telecommunications company.
The two deals are valued at more than $1 billion combined.
The deals, linking second- and third-tier telecommunications companies, carry broad implications for the larger industry, particularly for
, an easily overlooked behind-the-scenes player in the dealmaking.
Further blurring the lines between the telecommunications and computer industries,
, which provides software to link wireless telephones to the Internet, said it would buy closely held
, which provides a service to link voice, electronic and facsimile messaging services. The company would exchange stock valued at $758 million based on Monday's stock price for Phone.com.
World Access said it would merge with Star in a stock swap, exchanging 0.3905 World Access shares for each Star share. The deal, which gives World Access 17 transoceanic cable systems as well as switches and connections between German cities, is worth $492 million based on Monday's stock prices. But World Access said it might pay 40% in cash and agreed to provide up to $35 million in bridge financing.
On Feb. 2, World Access said it would review its original offer price of 0.525 shares of World Access per Star share, made on Dec. 20. The company decided that the new combined entities would have a deficient European sales force, leading it to believe it was paying too much for Star.
In afternoon trading, World Access shares fell 1 7/8, or 8%, to 21, while Star shares gained 9/16, or 9%, to 6 9/16. (World Access closed down 1 1/8, or 4.9%, at 21 3/4. Star shares closed up 3/4, or 12.5%, at 6 3/4.)
The Atlanta-based company said it would next acquire WorldxChange, which said it generated 1999 revenues of $600 million providing low-cost retail and wholesale phone service in North America, five European countries, two South American countries, Australia and New Zealand.
World Access said it would pay approximately 31 million shares of stock, worth $675 million, subject to adjustment, and assume $225 million in debt. The company has offered WorldxChange up to $30 million in bridge financing.
Both deals are subject to shareholder and regulatory approval; each company would receive a seat on the World Access board; both mergers are expected to close in the second quarter of 2000.
"The combination of World Access with
, Star and WorldxChange, creates one of the largest independent telecom service companies focused on the European market," said John D. Phillips, chairman and chief executive of World Access, in a news release. NETnet is the name used by
Long Distance International
, which agreed to sell its European telecommunications assets to World Access in December. "The network strengths, attractive retail customer bases, developed sales organizations, and significant traffic tonnage and scale of these operations significantly accelerates our strategic development.''
Consolidating lower-tier telecom companies also shores up long-distance prices for MCI WorldCom, which currently has its hands full with its announced merger with
, said Vik Grover, analyst for
Grover rates both Star and WorldCom shares buy, and his firm underwrote securities for Star more than a year ago. He does not formally cover any of the other companies, but he said his Star upgrade represents an implicit approval of World Access' plan.
WorldCom gained a 14% stake in World Access when World Access bought
in December 1998. Resurgens' debt to WorldCom was converted to equity in World Access. WorldCom and World Access share Lawrence C. Tucker, a general partner of the Wall Street firm
Brown Brothers Harriman
, as a director.
"The writing is on the wall that this is an off-balance sheet M&A deal for WorldCom," Grover said.
Meanwhile, Phone.com, of Redwood City, Calif., said it would buy
, of San Mateo, Calif., for 6.5 million shares of Phone.com stock and offer jobs to the smaller company's 70 employees.
Phone.com now sells wireless phone service providers software that can allow consumers to connect to the Internet through their wireless phones. The deal would allow the company to offer messaging applications, potentially giving consumers a reason to wish to do so, analysts said.
Phone.com shares fell 4 3/8, or 4%, to 116 3/4. (Phone.com closed down 2 5/8, or 2%, at 118 1/2.)
"The big area of upside is applications," said Edward R. Jackson, analyst for
U.S. Bancorp Piper Jaffrey
. Jackson rates the stock a strong buy, and his firm performed underwriting for the company's primary and secondary stock offerings. "There is no application stickier than messaging."
The company now will need to decide whether it wishes to sell its platform to wireless service providers as a software product or simply provide the service. With its connectivity service, the company is essentially attempting to become a
of telecommunications, creating a platform on which future software applications would be hanged. Messaging service is a logical starting point because it encompasses other forms of communication, Jackson said.
"This is potentially a little bit bigger than wireless," he said. "If you think about what the Internet provides, it provides a layer of abstraction over the devices."
But all that abstraction makes the company's competition hard to spot. On the software infrastructure side, there are behemoths like
. And on the software applications side?
"Anybody," Jackson said.