WASHINGTON -- A federal judge opened the door today for MCI Communications Corp. (MCIC) to sell the bulk of its Internet businesses next week to the highest bidder despite a court challenge.
US District Court Judge Thomas Penfield Jackson rejected a request from Cable & Wireless Plc, which agreed last month to buy MCI's wholesale Internet business for US$625 million, preventing MCI from offering an expanded deal to any other company for 10 days. The judge's decision is a key move in helping MCI complete its planned merger with WorldCom Inc. (WCOM)
Antitrust regulators in the United States and Europe have held up the $37 billion MCI-WorldCom deal because of fears that the merged company would have too much control of the Internet.
MCI's sale of its wholesale Internet business to Cable & Wireless was intended to mollify those concerns, but regulators subsequently said the divestiture was inadequate and MCI is now preparing to divest more Internet services.
Cable & Wireless filed suit against MCI Wednesday after learning of MCI's plan to offer a revised package of assets, including those it bought, to other bidders. Cable & Wireless charged that, under the original sales agreement, MCI was obligated to first offer it a chance to buy any revised package.
But during a 40-minute hearing today, Judge Thomas Penfield Jackson repeatedly asked Cable & Wireless attorney Charles Lettow why MCI could not invoke a $25 million termination provision in the earlier sales contract. "It seems that's an option open to them," the judge observed.
Lettow said that other provisions of the contract required MCI to first negotiate with Cable & Wireless in good faith.
Asked for evidence that MCI would not negotiate in good faith, Lettow said, "because they told us they wouldn't."
MCI attorney Phillip Cohan told the judge that regulators have not disclosed specifically what assets needed to be divested yet. If MCI was ordered to negotiate a revised sale with Cable & Wireless it would be "toward an objective that is totally unknown."
In the original deal with Cable & Wireless, MCI sold its Internet backbone service, which provides Internet transmission facilities to other Internet service providers. But MCI did not divest its retail Internet services that provide net access to corporate and residential customers.
People familiar with MCI's plans have said MCI now plans to divest the retail services as well. But WorldCom is not expected to put its fast-growing UUNet unit on the block.
Companies such as British Telecommunications Plc, IXC Communications Inc., and PSINet Inc. are seen as interested buyers of the retail assets, analysts said.
Jackson said that, while he would immediately deny Cable & Wireless' request for a temporary restraining order, he would later consider the company's request for preliminary and permanent injunctions.
