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Update: WorldCom and Sprint drop their merger plans

By James Cope and Bob Brewin
July 13, 2000 12:00 PM ET

Computerworld - WorldCom Inc. and Sprint Corp. this morning finally gave in to government opposition and made the expected announcement that their proposed $120 billion merger is being dropped.
A lawsuit filed two weeks ago by the U.S. Department of Justice in an effort to block WorldCom's planned acquisition of Sprint, combined with a similar stance against the deal by European regulatory officials, made continued pursuit of the merger unreasonable, the two companies said.
Conditions demanded by the DOJ in return for its approval "would compromise the customer and financial benefits" WorldCom and Sprint expected to get from the deal, they said. And a protracted legal battle against the DOJ "was not in the best interests of shareholders, customers and employees," the companies said.
In a separate statement, Sprint Chairman and CEO William T. Esrey said he disagreed with the DOJ's claims that the merger would hurt competition in the telecommunications and Internet broadband services markets. But fighting the government in court "is not a realistic alternative," he said.
The DOJ had indicated that it wouldn't be ready to go to trial until next January, and approval of the merger by the Federal Communications Commission and European officials would still be needed even if WorldCom and Sprint prevailed in court, Esrey said. Such "prolonged uncertainty" wouldn't be worth the effort, he added.
In another statement, WorldCom CEO Bernard Ebbers said the benefits of the merger would have been "clear and compelling." He added that the government's opposition to the deal "ultimately will reduce innovation and choice" for telecommunications customers.
Speaking Tuesday at a Wireless Communications International Association conference in New Orleans, Ebbers all but conceded that the planned acquisition of Sprint was dead and went on to chastise the DOJ for blocking the deal. He also indicated that WorldCom itself might be willing to mull an offer to be acquired. When asked to comment on the potential purchase of Voicestream Wireless Inc. by Deutsche Telekom, Ebbers said, "I think they would pick the best company to [look at]" -- a reference to WorldCom.
Earlier, corporate telecommunications users expressed relief at the prospect that the deal wouldn't go through. Many said they feared the combination of WorldCom and Sprint would stifle competition by creating an AT&T-like monopoly that would limit the ability of companies to use multiple service providers as a way of mitigating outage risks.
Where Worldcom and Sprint go from here is open to speculation.
Brownlee Thomas, an analyst at Giga Information Group Inc. in Cambridge, Mass., said Deutsche Telekom, France Telecom and NTT in Japan now are the obvioussuitors for Sprint. Both the German and French companies already have 10% ownership positions in Sprint, Thomas noted. But the Federal Trade Commission may be skittish about a Sprint takeover by one of these foreign companies because their respective governments hold ownership positions in each of them, she added.
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