Wednesday, September 06, 2000
WorldCom to buy Intermedia
Web-site hosting central in deal
The Associated Press and The Cincinnati Enquirer
JACKSON, Miss. WorldCom Inc. has agreed to pay $3 billion in stock to acquire Intermedia Communications Inc. and a controlling stake in Digex Inc., a leading operator of computer centers that run Web sites.
The deal is WorldCom's first since its failed foray into wireless communications through a planned merger with Sprint Corp. and its PCS unit.
When the Sprint deal fell apart in July, trounced by government worries about competition in long distance and national network services, WorldCom said it would refocus on businesses like those involved in Tuesday's agreement.
Intermedia, based in Tampa, Fla., is one of the biggest independent operators of voice and data networks in the country.
Reports that Intermedia and Cincinnati-based Broadwing, the parent of Cincinnati Bell, were in talks back in June reports that neither company would confirm sent Broadwing's stock down and the Tampa, Fla.-based local and long-distance telephone provider's shares soaring.
The gem in the acquisition is Intermedia's majority stake in Digex, a leader in the fast-growing industry of hosting Web sites for other companies on powerful computers at centralized data centers. Such companies specialize in directing online traffic, delivering Internet content and e-mail, and conducting secure transactions with consumers or other businesses.
WorldCom beat out several Digex rivals, including Exodus Communications and Global Crossing, in reaching an agreement to acquire the Beltsville, Md., company. Other competitors in this market include Qwest Communications and AT&T, which on Tuesday announced a $450 million contract to provide IBM space in its Web hosting centers.
Bernie Ebbers, chief executive of WorldCom, said the new relationship with Digex will accelerate his company's expansion into Web-based hosting services by 12 months to 18 months.
Analyst Scott Cleland of The Precursor Group in Washington said the acquisition is part of WorldCom's increasing emphasis on data and Internet operations.
This makes sense especially after the Sprint misfire, Mr. Cleland said. Web hosting is a strategically important traffic generator for WorldCom's Internet backbone.
However, investors did not react warmly to the deal. On Tuesday, shares of WorldCom were down $3.19, or 8.6 percent, to close at $33.75, on the Nasdaq Stock Market. Intermedia was up $8.61 per share to close at $31.48, but Digex was down $16.63, or almost 20 percent, to close at $67.88 on the Nasdaq Stock Market, amid disappointment that the company wasn't being acquired in its entirety.
If the deal goes through, WorldCom would hold 55 percent of Digex's equity and interest and 94 percent of the company's voting interest. The remaining 45 percent of Digex's stock would remain publicly traded.
The agreement calls for WorldCom, the nation's second-biggest long-distance service provider after AT&T Corp., to swap $39 worth of its stock for each of Intermedia's outstanding shares and assume about $3 billion in Intermedia debt.
WorldCom and Intermedia said their boards approved the transaction on Friday. The deal, subject to approval by shareholders and federal regulators, is expected to close in early 2001, the companies said.
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