MCI loses net arm in WorldCom deal

The US Department of Justice (DoJ) conditionally cleared the proposed MCI/WorldCom merger on 15 July, subject to MCI selling its entire internet division to Cable & Wireless.

The telco will pick up the ISP operation for $1.75 billion in cash. This includes the internet backbone facilities and retail businesses.

The sale was a condition laid down by the DoJ for the $37 billion merger to go ahead. It was included to allay industry fears that the merger would lead to the birth of an internet superpower.

The deal leaves Cable & Wireless as the world's number two ISP, behind WorldCom.

Bernard Ebbers, WorldCom chief executive, said: 'Telecom deregulation combined with rapidly changing technology presents WorldCom with endless opportunity. The merger with MCI will provide it with a more-diversified revenue base over which we can spread significant and growing-capital investment requirements.'

MCI chairman Bert Roberts, stated: 'We have fully addressed the anti-trust concerns of the DoJ and look forward to gaining final regulatory approval from the Federal Communications Commission.'

BT was barged out of the MCI deal by WorldCom, but will receive $7 billion for its stake in MCI. BT chief executive Sir Peter Bonfield has reaffirmed the telco's commitment to breaking the US market, hinting at either a potential alliance or merger.

The deal has also been given the green light in Europe. On 8 July, the European Commission cleared the way for the merger to go ahead, but also stipulated the sale of MCI's internet arm as a condition of its approval.

Cable & Wireless will raise the cash from a placing on the stock exchange.

The stock dilution will generate #887 million from a total of 112 million new Cable & Wireless shares. The shares will initially trade at 800p.