GTE Corp. on Wednesday offered to buy MCI Communications Corp. for $28 billion in cash, escalating a bidding war for the nation’s second-largest long-distance phone company.
The bid would be the biggest all-cash deal ever, topping RJR Nabisco Inc.’s $25 billion sale in 1989. It comes two weeks after WorldCom Inc., the No. 4 long-distance company, offered $30 billion in stock and British Telecom earlier proposed paying about $21 billion in stock and cash.
GTE’s board met Wednesday to vote on the offer and made an announcement after the stock market closed.
The $40 per share offer for MCI is just the latest in a series of jolts to the nation’s telecommunications landscape. A federal law intended to force more competition has touched off a spate of attempts by the industry’s biggest players - not all successful - to buy their way into each other’s businesses.
GTE would pay $40 for each share of MCI, or a total of $28 billion. The combined telecommunications company would have $40 billion in annual revenue.
WorldCom’s offer would be worth more than either rival bid, but investors will typically settle for a lower price in return for the security of cash rather than stock. MCI is scrutinizing whether WorldCom’s stock would retain its value.
MCI said its board would meet shortly to review the new bid as well as WorldCom’s. With less than $1 billion cash on hand, GTE would need to borrow billions more to pay for MCI. But GTE Chairman Charles R. Lee said he would be willing to consider paying a combination of cash and stock instead of all cash.
Buying MCI could make sense for GTE, a major seller of local phone service. GTE, which doesn’t face the same restrictions placed on the Baby Bell regional telephone companies, has been expanding in long-distance.
WorldCom’s offer on Oct. 1 exposed cracks in British Telecom’s bid, which was reduced in July after MCI said its earnings would suffer due to massive losses from its effort to start local telephone service.
MCI stock rose $1.56-1/4 on the Nasdaq Stock Market to close at $36.87-1/2 as reports of the offer circulated. MCI shareholders are scheduled to vote on the BT offer in December.
“It makes sense for GTE to get into the long-distance market as aggressively and as fast as it can because it’s free to do so,” said David Goodtree, an industry analyst with Forrester Research.
GTE, unlike Baby Bells that sell service in concentrated regions, offers local service in thousands of small communities scattered across 27 states in the Midwest and West. Federal law requires the Baby Bells, formed by the court-ordered breakup of AT&T;, to show they face competition for local service before offering long-distance.
AT&T; said Wednesday that it would expect federal regulators to force GTE to open up its local markets to more competition before approving a deal. AT&T; had been in talks to buy GTE, but the talks recently fell apart.
GTE has been peddling its long-distance service in all 50 states and has a big presence on the Internet due to its acquisition earlier this year of BBN Corp., a big competitor of WorldCom’s UUNet Technologies subsidiary. BBN operates regional computer networks and offers services for businesses such as dial-up access, consulting and hosting of World Wide Web sites.
But GTE is not a big player in services to large companies, an area where MCI gets a big chunk of its revenues.
A deal between GTE and MCI would have to be approved by antitrust authorities and the Federal Communications Commission.
The Justice Department would determine whether the combination would stifle or boost competition in the long-distance and local phone markets and examine its likely affect on telephone prices. The FCC would determine whether the deal would serve the public - which can include pricing and competition issues.
The FCC had no immediate comment on GTE’s bid for MCI.
xxxx MERGER FRENZY Here are some big events in the telecommunications industry since a February 1996 law freed local and long-distance companies to enter each other’s business: April 1, 1996 - SBC Communications Inc. agrees to buy Pacific Telesis Group for $16.7 billion in the first big phone-company makeover since the breakup of Ma Bell in 1984. The deal is completed exactly one year later. April 22, 1996 - Bell Atlantic Corp. and Nynex Corp. agree to merge in an exchange of stock. The $25.6 billion deal is completed Aug. 14, 1997. Nov. 2, 1996 - British Telecommunications PLC agrees to buy the remaining 80 percent of MCI Communications Corp. for $20.8 billion in cash and stock. The deal would be the biggest foreign takeover of a U.S. company. Aug. 22, 1997 - BT cuts its bid for MCI to $18.9 billion following MCI’s announcement just more than a month earlier that its annual U.S. local telephone losses would total $800 million. Oct. 1, 1997 - WorldCom Inc. announces it is offering $30 billion worth of stock for MCI in what would be the biggest U.S. merger in history. Oct. 15, 1997 - GTE offers $28 billion in cash to buy MCI and thwart bids by BT and WorldCom. The offer would be the biggest all-cash bid in U.S. history. -Associated Press