Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, April 10, 1990 TAG: 9004100614
SECTION: BUSINESS PAGE: A6 EDITION: EVENING
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
That could mean good news for consumers, they say, and even AT&T is saying it hopes to benefit from the tougher competition.
MCI Communications Corp. and Telecom USA, the fourth-largest company in the long-distance market, said Monday that MCI would acquire all outstanding shares of Telecom USA's stock for $42 a share, for a total price of $1.25 billion.
The transaction is subject to approval by Telecom's stockholders. The Federal Communications Commission also would have to grant approval and the Justice Department would review whether the deal would violate antitrust laws.
"It's a strategically important move," Bert Roberts Jr., MCI's president and chief operating officer, said in an interview. "It immediately brings us additional market share of about 1 1/2 percent and against AT&T, as dominant a competitor as they are, that efficiency is very important."
The cost "will have no effect on our ability to fund growth," Roberts said. "We're in a very cash-strong position. You're going to see that debt paid off very quickly, within a couple of years.
Industry analysts agreed the acquisition should give MCI a strong boost, despite the cost, because of Telecom's active moves in advanced technology.
"This shows the industry is consolidating at a very fast pace. AT&T is a very aggressive competitor and you have to move rapidly to grow. This gives MCI a further boost," said Charles Nichols, a telecommunications industry analyst for Prudential-Bache securities.
Nichols and other analysts played down the stock market reaction to Monday's announcement, which sent Telecom USA soaring $16.25 to $38.12 1/2 a share trading on the New York Stock Exchange. MCI dipped $1.12 1/2 to $35.75 a share on the over-the-counter market.
"We think this puts MCI and Telecom in a favorable position," said Cathy Clarke, senior analyst for The Yankee Group, a Boston-based consulting and marketing firm.
MCI revenues increased more than 20 percent in 1989 to $6.5 billion, while Telecom had revenues of $713 million in sales last year. Atlanta-based Telecom was formed in 1988 with the merger of Southernet of Atlanta and Teleconnect of Cedar Rapids, Iowa, and serves customers primarily in the Southeast and Midwest.
AT&T holds 64 percent of the long-distance market, down from about 90 percent before the court-ordered breakup of the old Bell system in 1984. MCI has 12 percent and US Sprint is third with 9 percent, according to the most recent FCC figures.
MCI will gain the digital network and the fiber optic systems Telecom has in place. "They're going to gain a lot of network miles," The Yankee Group's Clarke said.
"In this type of merger, we expect to see cost savings, improved quality of service, improvements for customers such as one-stop shopping. So, overall, this should be good news for consumers," she said.
Even AT&T said it was a good move. The former monopoly is trying to convince the FCC that there is enough competition in the market to lift some regulations aimed solely at AT&T.
"This development suggests two vigorous companies are combining forces to provide even more competition," AT&T spokesman Herb Linnen said. "We wake up every day to a real knockdown, drag-out fight in the marketplace."
by CNB