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MFS to buy UUNet in $2 billion deal

MFS Communications will acquire Internet service provider UUNet Technologies in a $2 billion deal.

MFS Communications announced plans today to acquire Internet service provider UUNet Technologies in a deal valued at $2 billion.

MFS builds and maintains fiber-optic telephone networks. After the proposed merger is complete, UUNet said it would use the MFS infrastructure to lower the cost of Internet access. UUNet caters to business users and maintains points of presence in the United States, Canada, Europe, and Asia.

UUNet has been discussing plans to acquire significant undersea and European terrestrial fiber-optic cable to increase the capacity of its services but had to withdraw an offer of additional stock to fund the plan after AT&T announced its WorldNet service. The company said the AT&T announcement created an unfavorable climate for the new venture but said it would investigate other financing options. Now, the merger will give UUNet the resources to pursue its original plan.

Under the agreement, each share of UUNet stock will be converted into 1.78 shares of MFS stock. UUNet shares rose 8-3/4, or 18 percent, to 57 in early trading today, while MFS shares fell 1-1/8 to 33-1/2.

Microsoft chairman Bill Gates endorsed the merger in a written statement, citing the potential of low-cost, high-bandwidth service. Microsoft holds a 13 percent stake in UUNet, which provides the primary framework for Microsoft's online service, Microsoft Network.

With the merger announcement, UUNet also released its financial statement for its first quarter. The company reported total revenues of $43 million, compared to $15 million for the same period a year before, a 186 percent increase. Its core Internet service business revenue brought in $39 million for the quarter, compared to $8.8 million a year ago--a 342 percent increase. UUNet reported net income of $233,000, or $0.01 per share, for the first quarter, as compared to a net loss of $263,000 in the same quarter in 1995.

Related story:
UUNet cancels stock offer