WASHINGTON -- The US Justice Department on Wednesday approved WorldCom's US$37 billion purchase of MCI on the condition that MCI sells its Internet assets -- which MCI said it would in a $1.75 billion deal with Cable & Wireless of Britain.
The swallowing of the nation's fourth-largest long-distance carrier by the second-largest ranks among the top three telecommunications deals in US history, behind the proposed merger of SBC Communications and Ameritech, and AT&T's pending acquisition of TCI.
With the cash purchase of MCI's wholesale and retail Internet businesses, Cable & Wireless becomes one of the largest US Internet service providers virtually overnight.
The Justice Department's approval removes one of the last hurdles to the deal, which was OK'd by European regulators last week. Regulators on both sides of the Atlantic had been concerned that the merger would let WorldCom dominate the Internet.
The US Federal Communications Commission is expected to complete its review in August.
MCI Chairman Bert Roberts said the divestiture fully addressed the Justice Department's concerns, and said he looked forward to gaining final approval from the FCC.
MCI said the Internet businesses sold to Cable & Wireless had projected revenues of $375 million this year. The assets sold included MCI's wholesale business, which connects 1,300 smaller Internet service providers to the Net, and its retail business with 250,000 consumer and 60,000 business customers.
About 1,000 MCI employees will be transferred to Cable & Wireless, and MCI-WorldCom agreed not to try to woo back any customers for up to two years.
The merger could still be derailed by a private lawsuit filed by GTE, which lost the international bidding war for MCI last fall.
Spokesman Peter Thonis said GTE continued to have concerns about MCI-WorldCom's dominance in the long-distance market. Thonis said he could not comment further until GTE saw all the details of the Justice Department's decision.
Analysts noted that the Internet sale represented a tiny share of the combined company's expected market value of about $100 billion, and would not have a significant impact on the merged company. WorldCom retained its fast-growing UUNet subsidiary, which also offers Internet services.
The prices of MCI and WorldCom stocks soared to all-time highs in anticipation of the Justice Department's afternoon announcement. MCI shares closed at $67, up $2.69. WorldCom gained $2 to finish at $54.75.
