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MCI WorldCom buys SkyTel for $1.8 billion

The long distance firm plans to buy paging company SkyTel in a deal worth about $1.8 billion in stock and debt.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
3 min read
MCI WorldCom said today it would buy paging company SkyTel in a deal worth about $1.8 billion in stock and debt.

The two companies have been working on a deal for as long as two months, according to some reports. Last week, MCI WorldCom actually registered the Internet domain name "skytelworldcom.com," but later backed away from the Net address after the news became public.

MCI WorldCom plans to swap 0.25 shares for each SkyTel share, or $21.24 each. Based on 60.07 million Skytel shares outstanding as of March 31, the stock part of the deal is valued at $1.27 billion. Skytel also has $265 million in senior notes, $73 million in bank debt, and $187 million in preferred stock, valuing the total agreement at approximately $1.8 billion.

Both companies have worked together in the past, with MCI WorldCom the biggest reseller of SkyTel paging services. SkyTel today has about 1.7 million paging subscribers, and annual revenue of about $518 million.

MCI WorldCom executives painted the acquisition as a new stage in the company's slowly developing wireless strategy.

"SkyTel...is ahead of the curve in developing and implementing wireless data applications," said CEO Bernard Ebbers in a statement. "SkyTel also brings a talented management team with a wealth of experience in wireless communications."

The company also has made several acquisitions of fixed wireless or wireless cable TV companies in recent months, as part of its drive to reach homes and businesses directly without going though local telephone networks.

But analysts said that, while useful, the SkyTel deal would not substitute for a genuine wireless phone division that could help MCI WorldCom compete with AT&T's mobile phone unit or Sprint PCS.

"For MCI, it gives them something in the way of wireless, so at least this helps them on the paging side," Julie Rietman, a wireless industry analyst at International Data Corporation, a market research firm. "I think they're still going to need to have an alliance or an acquisition on the cellular/PCS side in order to bundle services effectively."

Ebbers has been lukewarm on wireless acquisitions until recently, saying that the company eventually needed a mobile phone component, but not seriously enough to rush into an unprofitable acquisition.

Early this month, MCI WorldCom broke off negotiations with Nextel, the last remaining independent national wireless phone operator, after the two couldn't come to an agreement over a merger price.

"Despite this entry by MCI in the [paging] market, it also needs to be in the cellular PCS market," said Naqi Jaffery, mobile communications analyst at Dataquest. "On the other hand, the paging industry has quite a significant growth potential over the next few years."

Dataquest expects the U.S. two-way paging business to grow to 5.1 million customers in 2002 from about 180,000 subscribers last year, Jaffery said. Revenue for domestic two-way paging services will total an estimated $1.2 billion in 2002, he said.

Despite holes in its cellular strategy, analysts said MCI WorldCom has added one of the most aggressive paging companies in the business.

"SkyTel was probably one of the best paging companies to acquire," Jaffery said.

The deal is expected to close within the next six to nine months, MCI WorldCom said.

News.com's Corey Grice and Bloomberg contributed to this report.