Continuing to manuever to gain regulatory approval for its merger with WorldCom, MCI is now preparing to divest its retail Internet services, people familiar with the situation said on Thursday.
The company had already agreed to sell off its networking services to Cable & Wireless for US$625 million, but now MCI (MCIC) is likely to package both the retail and wholesale businesses together for sale to the highest bidder -- and a deal could be announced as soon as next week.
Fearing just such an outcome, Cable & Wireless filed suit against MCI in US federal court Wednesday to block the sale of Internet assets to any other buyer. But the original deal allowed MCI to cancel the transaction for a $25 million payment to Cable & Wireless -- an amount the company could more than make up in a new, more complete deal.
MCI's retail Internet business, with revenues of about $110 million, could fetch up to $450 million, analysts said. Total proceeds from the sale of both the wholesale and retail units would be about $1.1 billion.
US and European antitrust regulators have given the $37 billion MCI-WorldCom merger intense scrutiny. European competition chief Karel Van Miert has said the companies must do more than sell MCI's wholesale Internet "backbone" business to get his approval, but he has not called for the sale of WorldCom's vast stake in the market, UUNet.
"There is no reason it (the revised deal) won't satisfy the regulators," one source said. "This time there has been a more thorough going-over with regulators in advance."
An MCI spokesman said discussions were continuing with regulators but declined to comment further. "We're not in a position to get into specifics," the spokesman said.
In its lawsuit, Cable & Wireless said MCI was required to give it an exclusive opportunity to acquire the new package of assets being divested. The British telecom firm also said that MCI and WorldCom (WCOM) had informed it that they planned to revise their initial asset sale after regulators said the divestiture was insufficient.
Companies such as British Telecom, IXC Communications, and PSINet (PSIX) are seen as interested buyers of the retail assets, analyts said. Those companies could not be immediately reached for comment.
In addition to the sale of its retail business, MCI may agree to new interconnection requirements and extension of a non-compete clause that prevented MCI from competing against Cable & Wireless for wholesale customers for two years, analysts said.
