Well, we can't knock
any more for not getting
a serious wireless operation. By acquiring
, MCI WorldCom aimed high -- with a price tag of $115 billion in MCI WorldCom stock, in more ways than one -- and picked up a class act.
The Sprint wireless assets are substantial, and are the key here. This is a deal all about wireless, not long distance. Indeed, since Sprint split off its wireless business into a tracking stock,
, some time back, a side deal here is that MCI WorldCom gets that business, too, by issuing PCS holders a new MCI WorldCom tracking stock plus .15 of a MCI WorldCom share for every PCS share they presently own. (Complicated? You bet. Think that's an accident? Think someone has a reason to want this deal to be hard to value?)
Sprint Deal: Tell us what you think on
By joining the country's second- and third-largest wireline long-distance companies, and with combined long-distance revenue around $50 billion, the "new" MCI WorldCom looks like a powerful player in the long-distance business. For whatever that's worth.
I'm convinced that as we value telcos and telco-tech companies going forward, we're going to start discounting the long-distance-related portion of their revenue, since this has become such a sorry business -- and is going to get worse and worse. Long distance can still be profitable at sub-nickel-a-minute rates -- even, probably, down to the 2-cent/3-cent-a-minute range I expect by next spring -- but it's going to be used almost universally as a loss-leader, to sell more valuable services (Net access, data transmission, wireless, U.S.-to-overseas long distance, etc.).
, as you no doubt know, made offers and counteroffers for Sprint, but in the end, this morning the Sprint board voted to accept MCI WorldCom's offer. (Expected offers from
, each of which holds about 10% of Sprint, apparently never materialized. (Both chose, apparently, to take their $10 billion-plus from MCI WorldCom and go away.)
The Sprint board chose MCI WorldCom, I suspect, for two reasons: to build a bigger, stronger, more competitive combined company, and in anticipation of regulatory issues.
already fired a shot across MCI WorldCom's bow this morning, promising serious regulatory review and talking about "a surrender in competition" -- words which almost certainly presage demands for some divestiture of existing MCI WorldCom operations as the price for government approval.
Had BellSouth been the winner, I think the Feds would have demanded big-time sales or spinouts of the wireless businesses BellSouth already owns, plus at least some of what Sprint brought to the table. Since Sprint's being acquired primarily as a way to get its wireless business, that would have been a lousy deal.
For what it's worth, I think the deal is ultimately
-competition, by creating a serious competitor for market leader
, which I am long. Consumers (if not investors) have benefited greatly from competitive pressure driving down long-distance rates; a bulked-up MCI WorldCom will inevitably push them down even further, until
says "ouch." And then a little further still.
This regulatory review for a MCI WorldCom-plus-Sprint-plus-PCS combination promises to be a bloody process. In fact, by midafternoon, Sprint was still trading well below its probable worth if the deal goes through. The arbitragers are scared here, and with some cause.
I'd put the odds of final approval near 100% -- but at what may be a very high cost in buying regulatory approval, possibly one which sucks a lot of the viability out of this deal.
Nonetheless, I'm long and staying long MCI WorldCom. This is a smart if expensive deal for MCI WorldCom, and I think it's one of those all-too-rare M&A plays where 2 plus 2 really does add up to 5 or more.
In a world of incredibly tedious TV spots from online brokers, don't miss the standout new spot from
. On a movie set for an Elizabethan costume drama, a diva-like star is about to finalize a trade via Waterhouse, when she's summoned to the set. I'll leave the rest for you to discover.
Amazing production values, a little humor -- a rare combination indeed, in this biz. Stewart and his boss better watch out.
Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was long AT&T and MCI WorldCom, although holdings can change at any time. Seymour does not write about companies that are current or recent consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites your feedback at