Two of the biggest short-term winners in the $12 billion-plus merger between WorldCom Inc. and MFS Communications Co. are Baltimore-area firms.
The Baltimore venture capital firm New Enterprise Associates Inc. will see the value of its 5.7 million shares of MFS skyrocket if the all-stock deal, the value of which changes with fluctuations in WorldCom's share price, goes through at anything like the $55.39 a share the parties agreed to last weekend.
That price would make New Enterprise's stake in the combined company worth $318 million, a remarkable return on the $3.9 million the firm invested only two years ago in Uunet Technologies Inc., a Virginia-based Internet service provider.
"I don't think this is a normal deal," said Peter J. Barris, an NEA general partner. "It's not unprecedented, but it's fairly extraordinary."
The numbers are smaller than that for now, however, because the value of WorldCom shares has fallen more than $5 a share since Friday. At yesterday's closing prices, WorldCom's offer values NEA's stake at $253.2 million.
The dip came because of criticism that WorldCom is paying too much for MFS, whose Internet access, local phone service and cable TV businesses will go a long way toward rounding out the communications offerings of the nation's No. 4 long-distance carrier. Yankee Group analyst Brian Adamik suggested that Bell Atlantic Corp. was worth $100 billion if MFS was worth what WorldCom will pay.
Not surprisingly, Barris was having little of the criticism.
"The market has spoken," he said, noting that NEA itself effectively bought MFS stock when it agreed to accept payment for Uunet in MFS shares. "It's been a very aggressive, innovative company that is looking at a huge market opportunity."
That opportunity is the same one that Annapolis Junction-based American Communications Services Inc. is chasing. Both ACSI and MFS are in two obscure businesses -- competitive local exchange service and competitive access providing.
Competitive exchange carriers will compete with traditional Bell monopolies for a share of the local telephone service markets, especially the more lucrative markets serving business customers.
That opportunity is huge: In 12 years since the breakup of AT&T;, new entrants have whittled AT&T;'s share of the long-distance market to only 55 percent.
The competitive access business is similar. Access carriers use their local networks to carry long-distance calls from the phone of a long-distance company's customer out to the long-distance firm's wires, which don't spread to each home or office the way local phone systems do.
The price that firms like AT&T; pay Bell Atlantic and other Bell-company access providers can be as much as half the price of a long-distance call, which executives at MCI and AT&T; charge is six times more than the service costs to provide. One reason MFS commanded such a high price from WorldCom is the idea that buying access providers will help long-distance carriers cut out the middleman.
That's why ACSI shares are up $2.125 since Friday to $12.125 yesterday. But ACSI Chief Executive Rick Kozak said the company, which serves mostly second-tier cities in the South and West, is not actively looking for a buyer.
Kozak said ACSI wants to serve all the long-distance companies in its targeted cities, rather than just one.
Pub Date: 8/28/96