MCI WorldCom and Sprint Create Pre-Eminent Global Communications Company for 21st Century

Cambridge Telcom Report, Oct 11, 1999

MCI WorldCom and Sprint, PCS) Tuesday announced that the boards of directors of both companies have approved a definitive merger agreement. The merger creates the pre-eminent global communications company for the 21st century -- a dramatically more effective competitor. The combined company, to be called WorldCom, will provide a full range of services to residential and business customers on its owned, end-to-end, state-of-the-art network infrastructure. WorldCom will be a leader in the fastest growing areas of global communications services, offering innovative broadband, "all distance" services to businesses and homes, and nationwide digital wireless voice and data services.

Under the agreement, each share of Sprint FON Group (NYSE: FON) will be exchanged for $76.00 of MCI WorldCom common stock, subject to a collar. In addition, each share of Sprint PCS Group (NYSE: PCS) will be exchanged for one share of a new WorldCom PCS tracking stock and 0.1547 shares of MCI WorldCom common stock. The terms of the WorldCom PCS tracking stock will be equivalent to those of Sprint PCS and will track the performance of the company's PCS business. The total value of the transaction is approximately $129 billion ($115 billion in equity and $14 billion in debt and preferred stock). The merger will be tax-free to shareholders and accounted for as a purchase.

The transaction is expected to be essentially non-dilutive to WorldCom's earnings per share before goodwill amortization ("cash earnings"). The combination creates significant cost savings that will allow the new company to compete aggressively in both the business and consumer markets and to aggressively invest in new technologies such as broadband access and next generation wireless.

MCI WorldCom has a proven track record of identifying and realizing cost savings. The companies estimate that annual cash operating cost savings of $1.9 billion are achievable in 2001 -- the first full year of operation -- increasing to $3.0 billion annually by 2004. These cost savings are anticipated to result from better utilization of the combined networks and other operational savings. Capital expenditure savings of $1.3 billion a year are expected in 2001 and beyond, primarily as a result of economies of scale and procurement efficiencies.

In addition to cost savings, the transaction offers the prospect of significant revenue benefits as a result of churn reduction from bundling a broader range of services, cross selling to a larger customer base and the development of new services. MCI WorldCom and Sprint have also agreed to enter into commercial business arrangements between the two companies prior to closing.

WorldCom will have the capital, proven marketing strength and state-of-the-art networks to compete more effectively against the incumbent carriers, domestically and abroad. The combination of MCI WorldCom and Sprint will:

-- Generate pro forma 1999 revenues of more than $50 billion, a market enterprise value of approximately $290 billion and significant operations in more than 65 countries;

-- Offer a unique nationwide broadband access alternative to both cable

and traditional telephony through a combination of Digital Subscriber Line (DSL) facilities and fixed wireless access using the combined company's nationwide MMDS spectrum;

-- Continue to lead the industry with innovative service offerings for consumer and business customers alike in an increasingly competitive global marketplace. The combined company, operating with extensive local facilities as well as substantial scale, will have the capability to bring innovative broadband solutions to local customers in the United States and abroad; and

-- Be a formidable wireless competitor in the United States -- with more

than 4 million PCS subscribers, leading the industry in growth; and 1.7 million paging and advanced messaging customers.

Bernard J. Ebbers, president and chief executive officer of MCI WorldCom, said, "The economics of the combination are particularly compelling and WorldCom will have the capital, proven marketing strength and state-of-the-art networks to compete more effectively against the incumbent carriers domestically and abroad. Sprint's ability to offer a full range of wireline and wireless services will benefit our customers and fuel sustained double-digit revenue and earnings growth. The merger with Sprint is particularly timely as wireless communications emerges as a critical component of full service offerings. Increasingly, wireless will be used for Internet access and data services, two areas in which both companies excel. Gaining an all-digital nationwide footprint with common technology and spectrum that delivers next generation capabilities is of paramount importance."

William T. Esrey, chairman and chief executive officer of Sprint, said, "From building the first nationwide fiber optic network to creating the nation's first all-digital, nationwide PCS wireless system, Sprint has been a pioneer in the communications industry. Sprint has utilized technology and marketing innovation to deliver value to consumers and businesses worldwide. Sprint ION will enable the merged company to provide end-to-end integrated broadband services for the home, as well as for the business market, as an alternative to traditional cable and telephony providers. The combined strengths of WorldCom and Sprint will allow us to bring customers a suite of fully integrated broadband and wireless all-distance services providing consumers and businesses with exciting competitive alternatives."