MCI Worldcom's acquisition of Sprint ranks as the largest of its kind and I feel hardly anything.
| Have an opinion on this? |
Maybe it's just burnout. Today's announcement marks a huge merger, not an innovative one. Bell Atlantic buys Nynex. SBC buys Pacific Bell. Worldcom buys MCI. SBC buys Ameritech. Qwest buys US West. Global Crossing buys Frontier. One deal runs into another runs into another runs into another. My wallet is as big as yours.
Strategically this makes sense for MCI Worldcom: wireless rounds out the package, more phone customers are always nice. You could dispute whether Sprint (price: $115 billion stock) is worth 86 percent of MCI Worldcom (market cap as of Monday's close: $134.2 billion), but Bernard Ebbers deserves the benefit of the doubt. This deal counts as severely dilutive for now, but Worldcom's high margins and profits won't go away.
Other threads aren't nearly as interesting as a lot of people seem to think. FCC Chairman William Kennard's statements this morning put the fear of Government into Sprint shareholders, but you shouldn't worry about it much. Kennard called this deal a "surrender" in the face of long distance competition, yet Sprint and MCI aren't competing against each other as much as they're gunning for AT&T, whose long distance share remains far above their combined total. Besides, if SBC-Ameritech can get approval, there's certainly no reason why Sprint-MCI wouldn't.
The other subplot revolves around the usual handicapping. Who's next on the acquisition list? Qwest, Global Crossing and Nextel are rising today on takeover hope, especially since BellSouth has demonstrated its willingness to shell out quite a bit to go big time.
Whatever. Fact is, at least within the United States, not many large players remain. Today's major players are so large that further mergers won't change the overall competitive landscape much, despite Kennard's knee-jerk reactions. It's fun for takeover speculation, but that's about it.
Consider today's announcement: MCI Worldcom buys Sprint, and absolutely nothing changes about MCI Worldcom's position in its major markets. It's still second in long-distance. Its data traffic position -- already among the leaders -- remains the same, especially since the new Worldcom will likely sell off Sprint's backbone to resolve regulatory concerns. Worldcom benefits from having wireless in its array, but it remains to be seen whether it can boost the growth rate of PCS.
Sheer size notwithstanding, today's announcement merely marks another step in the expected wave of consolidation. It lacks the revolutionary potential of AT&T-TCI, which could change the way communications services are marketed and delivered.
MCI Worldcom-Sprint won't change the way business is conducted, won't change the overall market's pace of expansion, and might not even change Worldcom's already impressive growth rate. Worldcom will get a one-time boost that will come from adding a business currently pulling in $5 billion a quarter, but in today's market, investors discount non-recurring events.
Buying Sprint is a big deal for MCI Worldcom. It's a big deal for stock traders playing the communications waters. But it doesn't change the big picture.
Prince also tells investors to "focus on the company's fundamentals" -- even as he lowers his earnings estimates.