Sprint Worldcom Deal Hits Speed Bump
By Matt Paolucci

Shares of mega-merger candidates WorldCom Inc. (WCOM) and Sprint Corp. (FON) fell on Wednesday after a Washington Post report this morning said European antitrust authorities are in town to declare that they would block the $150 billion combination, based on current terms.

Regarding U.S. Justice Department's view of the deal, the companies expect to know within the next two weeks. The DOJ has been echoing its sentiments for months that the combined company would garner too large a piece of the long-distance telephone market.

EU Competition Commissioner Mario Monti plans to meet later this week with Attorney General Janet Reno, Assistant Attorney General Joel Klein, FCC Chairman William Kennard and FTC President Robert Pitofsky to discuss the merger, among other things.

The 20-member board of the European Commission, representing 15 countries in the region, has been discussing the deal since January. The merger was announced last October.

The transaction, if approved, would create a telecom giant with revenue of more than $50 billion, ranking it among the largest companies in the world.

The EU has repeatedly cited concerns about the combination, mainly for its potential gate-keeping effect on Internet.

Much of the debate stems from Worldcom's most prized possession, its UUNet Internet backbone business. The companies have offered to sell Sprint's smaller Internet business. But Monti and the rest of the EC prefer that WorldCom divest UUNet because it's a standalone business. The EC argues that Sprint's Internet activities are more integral to its operations, therefore less easy to separate.

Amelia Torres, Monti's spokeswoman, said, "a decision is on the table," and that antitrust experts from the EU countries will meet in Brussels tomorrow to review the staff's decision.

If the merger is derailed, both companies said they would seek other merger partners.

The EU added to its argument that there are only a handful of companies providing Internet backbone service, those companies being WorldCom, Sprint, Cable & Wireless and GTE Corp.

"UUNet could prove to be the dealbreaker," said Kiran Desai, competition partner at Rowe & Maw law firm in Brussels.

This is not the first time Worldcom, after some 75+ acquisitions over the past four years, has had problems gaining regulatory approval. In 1998, the Company was forced to sell Internet assets as part of a deal to buy MCI Communications. Cable & Wireless PLC, which ended up buying MCI's Internet backbone business, subsequently sued WorldCom in 1999, accusing it of failing to switch customers over to Cable & Wireless' services. Not the kind of history you want to have in trying to close a deal of this magnitude.

Shares of Worldcom (WCOM) were down $1.56 at $40.13 in afternoon trading on the Nasdaq. Shares of Sprint (FON) were also lower by $1.06 at $59.06.