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GTE the latest to court MCI

GTE's reported $28 billion cash offer for MCI is the latest in a series of acquisitions and proposed mergers in the telecommunications industry.

GTE yesterday confirmed that it had sent an unsolicited proposal to MCI Communications, marking its third takeover proposal since November.

MCI said in a statement that its board of directors will meet soon to review all issues and options surrounding the GTE proposal, and the unsolicited proposal the company received from WorldCom, examining how they relate to the company's strategic merger agreement with British Telecom.

The deal with BT was scheduled to close by the end of the year. But the recent offers are jamming the wheels of progress.

And this is quite an ego boost for MCI, said a company insider, noting that the multiple bids reflect the value of the company's strategy and services and put MCI in the driver's seat.

Charles Lee, chairman and CEO of GTE, today sent a letter to Bert Roberts, Jr., chairman of MCI, proposing to acquire MCI in a transaction valued at approximately $28 billion in cash, or $40 per share. The GTE offer follows WorldCom's offer last week to acquire the telecommunications giant for $33.5 billion worth of common stock in exchange for all outstanding MCI shares.

"The logic and vision of this merger are compelling. The combined enterprise?would generate over $40 billion of annual revenues; serve more than 21 million local and 24 million long-distance lines, and 5 million wireless customers; have a global presence in 77 countries; possess one of the world?s most advanced global data communications networks," said the letter.

WorldCom, for its part, made its case in a statement released today: "Our $41.50 offer provides superior near-term and long-term value for MCI shareholders. The financial benefits and powerful synergies of our offer are compelling for the stockholders of MCI and WorldCom," the statement said. "WorldCom and MCI have more compatible cultures than GTE and MCI and share a common entrepreneurial spirit, enabling WorldCom-MCI to compete more effectively."

Analysts, however, say the cash deal may outweigh MCI's other offers.

"Cash is cash," Scott Wright, an analyst at Argus Research, told Reuters. "It's money you can put in your pocket. You can't put a WorldCom share in your pocket. It's a very tempting offer."

Other analysts say the deal comes bundled with a tough financial aftermath.

"It's the stupidest thing I've ever heard," Louis Ehrenkrantz, an analyst at Ehrenkrantz King Nussbaum, told Reuters. "It will cost so much and cuts so deep into their balance sheet that GTE will choke on it for years to come. It's just like when Viacom made its cash offer for Paramount. They had to borrow the money and now they're selling off assets just to get out of debt."

The GTE proposal encompasses other telecommunication giants as well. It had been widely reported last week that AT&T was in talks with GTE over a possible combination of the two companies.

AT&T has been hunting for a successor to chairman Robert Allen since mid-summer, after the previous heir-apparent, John Walter, walked out after the board declined to name him to the top post.

While AT&T declined to comment specifically about the ramifications of the deal and the status of its talks with GTE, the company said in a statement that, if the GTE acquisition gets government approval, it would bring more competition to the local telecom market.

"We fully expect the government to require GTE to get serious about opening its local markets to real competition and to stop erecting legal and economic roadblocks to the speedy implementation of the Telecommunications Act," the statement said. "As we've said before, no telecommunications merger should be approved unless it increases competitive choice for customers."

On Wednesday, GTE reported strong third-quarter earnings driven by the continued excellent performance of its core businesses and backed by strong growth in new service initiatives.

Earnings per share from core operations increased 10 percent from the year-ago quarter, to 86 cents. Including the effects of the previously announced data initiatives, reported earnings per share of 79 cents were one cent higher than the prior year's 78 cents.

During the quarter, consolidated revenues and sales increased by 11 percent, to $5.94 billion. Excluding the $127 million in new revenues related to the new data initiatives, consolidated revenues and sales grew 8.8 percent, GTE said.

"We're quite pleased with their results, especially the growth they enjoyed in their vertical services market and cellular market," Wright said. "We've set a target price of $58 per share on the belief that the market doesn't recognize its growth potential. If this deal goes through, it shouldn't have the dilutive effect that a company with a higher valuation might expect."

And what becomes of WorldCom?

"I wouldn't be surprised to see them either try to come back to MCI with a different offer, maybe a cash offer, or abandon MCI and try to work out a deal with BT," Wright said. "Things are happening so quick in this market that, if you blink, you might miss the biggest merger in history."

Reuters contributed to this report.