European Commission approves WorldCom/MCI merger

By Elizabeth de Bony
IDG News Service, 7/8/98

WorldCom, Inc. has won a conditional okay from the European Commission for its planned acquisition of MCI Corp., the Commission announced today.

In a decision that was widely expected, the Commission approved the $37 billion acquisition subject to a divestiture of all MCI's Internet business activities worth an estimated $4 billion.

The sale is designed "to enable the acquirer to take over the position of MCI as a player in the market," according to a Commission statement.

The divestiture of assets is subject to the prior approval of both the European Commission and the U.S. Department of Justice. The conditions also give the Commission the authority, if appropriate, to appoint a trustee to oversee the divestiture and "if necessary, to ultimately take control of the sale process, i.e., finding a buyer and drawing up an agreement," according to the statement.

The Commission also intends to ensure that as soon as MCI's Internet business is sold off, the merged company will not try to recapture former customers, Competition Commissioner Karel Van Miert said today.

With this objective in mind, the Commission's approval is also subject to the companies respecting both a noncompetition and a nonsolicitation clause for a limited period. These would prevent the merged company from targeting any of MCI's customers that currently use MCI Internet services or from trying to sell Internet services to customers who currently pay MCI for packages of telecom services including phone, fax and Internet access.

The Commissioner declined to provide further details about the duration of these conditions or about how fast MCI must divest its business, due to market sensitivities.

"I cannot be more specific," he said.

Without divestiture, WorldCom and MCI would have controlled 50% of the Internet access market, according to the Commission.

Analyst Jeffrey Kagan, based in Marietta, Ga., predicted today's conditional approval from the EU will be followed by U.S. regulators also giving a thumbs up to the deal for two reasons: "One, the EU has put the company through the wringer and two, there's nothing else for MCI WorldCom to give," he said in an e-mail response to the news.

"This is good news for the companies since they can get ready to get back to the business of serving customers instead of wrestling with regulators. While these concessions will appease regulators on both shores, I don't think these concessions will be a setback for the new MCI WorldCom since the Internet is so dynamic and fast growing and there are still unrivaled opportunities for growth for any player," Kagan said.

Throughout the review of the merger, the Commission acted in close cooperation with the U.S. Department of Justice, which is scheduled to hand down a similar decision later this year.