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WorldCom shares sink
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June 22, 2000: 7:36 a.m. ET
Latest reports of possible asset sales raise doubts on $115B Sprint merger
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NEW YORK (CNNfn) - Shares of Worldcom Inc. continued their recent retreat Thursday as investors and analysts expressed growing frustration over reports that the telecom titan may be forced to sell off several assets to gain regulatory approval for its $115 billion acquisition of Sprint Corp.
Worldcom (WCOM: Research, Estimates) stock fell 1-1/2 to 38-13/16 in mid-afternoon trading and now has lost more than 11 percent of its value since hitting 44-1/8 just two weeks ago amid growing speculation that its deal with Sprint might be in jeopardy.
Several press reports said the Clinton, Miss.-based company is willing to sell off all or part of Sprint's long-distance business and Internet backbone to appease U.S. regulators worried the combined entity would stifle competition in those areas. Worldcom is currently the second-largest long-distance provider in the nation, behind AT&T (T: Research, Estimates), while Sprint (FON: Research, Estimates) is ranked third.
 But investors became dismayed Thursday when new reports surfaced that Worldcom has offered to spin-off its own U.S. consumer long-distance base as well, hoping to help appease members of the European Commission, which also reportedly is leaning toward blocking the deal.
Some analysts believe the odds are now, at best, even that the merger will ultimately go through. Speculation has also surfaced recently that if the deal is blocked, Worldcom may instantly become an acquisition target itself.
"My view as an analyst: It obviously looks like the deal's in jeopardy," said Drake Johnstone, an analyst with Davenport and Co., who put the odds of the merger being completed "not better than 50/50, maybe 40/60."
"The big concern is that Worldcom will have to do something dilutive," said Charles Disanza, an analyst with Gerard Klauer Mattison & Co. "If they have to divest [Sprint's] consumer long-distance business, no sweat. WorldCom would be glad to get rid of it.
"The big question is how much did they depend on saving by combining their long-distance businesses. Without those savings, is this worth it?" Disanza wondered.
Worldcom officials declined to comment Thursday. Sprint shares gained 1-1/8 to 60-1/8 by mid-afternoon.
EU commissioner on Capitol Hill today
The European Commission, the executive arm of the European Union, is expected to veto the merger, backing claims by EU Competition Commissioner Mario Monti that the combined WorldCom (WCOM: Research, Estimates) and Sprint (FON: Research, Estimates) would stifle Internet competition across the continent.
The Commission will consult experts from the 15 EU states later Thursday, with a final decision expected on July 5 from the full 20-member Commission. Monti is in Washington D.C. today to meet with Federal Trade Commission Chairman Robert Pitofsky, and later with Sen. Mike DeWine (R-Ohio) and Sen. Herb Kohl (D-Wis.).
Both DeWine and Kohl sit on the Senate Judiciary Committee and the Senate Subcommittee on Antitrust, Business Rights and Competition.
Selling Sprint's long-distance assets could fetch between $45 billion and $50 billion, the Financial Times and Wall Street Journal reported Thursday. Worldcom reportedly made the offer after the U.S. Justice Department's staff recommended the deal be blocked because of anti-trust concerns.
The sale of those assets doesn't bother analysts much, because Sprint's long distance and Internet units would only contribute about 20 percent of the combined company's annual revenue, one analyst said.
If WorldCom sells the long-distance network and Internet business, it would allay the concerns of the regulators, but the company would be still would be left with a handful of wireline assets valued at between $5 billion and $10 billion, the FT said. After the disposals WorldCom would also be left with Sprint's PCS wireless network.
The Internet backbone -- the basic infrastructure needed to access the Web -- is currently dominated by just four companies: WorldCom, Sprint, GTE Corp. (GTE: Research, Estimates), and British-based Cable & Wireless (CW-).
WorldCom Chief Executive Bernard Ebbers told shareholders at the company's annual meeting that he would rather walk away from Sprint than sell UUNet Technologies Inc., the operator of the largest slice of the world's Internet backbone. The EU has reportedly pushed for UUNet's sale.
 WorldCom was forced to sell MCI's Internet business in 1998 -- a condition of being allowed to buy the company. C&W thought it had bought itself a leading position in servicing the Web after it snapped up MCI's Internet arm, which pipes vast amounts of data through a fiber optic network.
But the British company then sued MCI, accusing it of failing to effectively transfer MCI's Internet customer base, of impeding C&W's ability to operate the business and of targeting former MCI customers for marketing purposes.
A sale of Sprint's long-distance assets could trigger a bidding war between U.S. and European telecom companies. Deutsche Telekom (DTE) and BellSouth tried to buy Sprint last year.
Armed with a war chest of  100 billion ($93.76 billion), Telekom Chief Executive Ron Sommer last week warned that no U.S. telecom company was beyond its acquisitive reach. The German company, formerly a partner of Sprint, had been rumored to be considering a bid before it sold its share of their international joint venture, Global One, in 1999. 
-- from staff and wire reports
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