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Analysts debate possible sale of MCI

Sep 27, 20043 mins
Mergers and AcquisitionsNetworking

While it emerged from bankruptcy five months ago, it appears there could be more big changes in MCI’s future.

While it emerged from bankruptcy five months ago, it appears there could be more big changes in MCI ‘s future.

Last week The New York Times reported that the carrier has hired three investment banks to advise MCI as it looks for a potential buyer. According to the report, MCI is looking to get at least $6 billion for the company. Although MCI won’t comment, President and CEO Michael Capellas answered questions last week at the Banc of America Securities conference in San Francisco.

Want to buy MCI? Caveat emptor

Johna Till Johnson explains why would-be purchasers need to be extra cautious.

“We have been through every distraction known to man. Our No.1 priority is that we are going to drive forward with this business plan,” Capellas said. He concluded the topic by saying “we are going to stay focused . . . and any other comment I would make would be inappropriate.”

Even though MCI is keeping details about its search for a buyer quiet, it’s not an entirely new development. Two months ago Leucadia National sought permission to buy at least half of MCI’s stock . In July, analysts speculated that Leucadia’s interest in the downtrodden carrier could open the floodgates to offers from others.

It’s not clear if Leucadia is still in the running, or if it just didn’t offer MCI enough money and talks broke down, says Allan Tumolillo, COO at consulting firm Probe Financial Associates. But if not Leucadia, there are a handful of other likely candidates that could be interested in buying all or parts of MCI. Tumolillo points to AT&T and BellSouth  as two companies that are likely to be interested.

AT&T is aggressively rolling out its VoIP consumer service and is teaming with cable providers to reach more consumers. If it bought MCI’s consumer business it would have more users to bring to the cable industry, Tumolillo says. If AT&T bought parts or all of MCI’s enterprise business, it would be taking out a competitor, he says.

Although Verizon and SBC  might be interested in MCI’s enterprise business, BellSouth is the one RBOC that needs to make a move, Tumolillo says.

BellSouth “will always be fourth or fifth after the RBOCs and [interexchange carriers] if it doesn’t do something,” he says.

Another analyst sees MCI being sold in parts, with likely buyers in the RBOC or international ISP circles.

“MCI probably has more value in its piece parts,” says Robert Rosenberg, president at Insight Research. This is true for two reasons, he explains. Under Bernie Ebbers’ rule, the company made many acquisitions that were not fully integrated into the parent company. Secondly, the MCI brand still is tarnished despite a name change and new executive regime, Rosenberg says.

“MCI’s international network has some great appeal to someone like SBC or Verizon who could pick up substantial business-class customers,” he says. MCI currently offers services in 65 countries.