The second-biggest US telecommunications company, MCI WorldCom, will buy Sprint, which comes in at number three, in a deal valued at $129 billion (€121 billion), by far the biggest corporate takeover ever.
The combined company, to be called WorldCom, would have about 30 per cent of the $90 billion US long-distance market and create a huge rival to market leader AT&T.
MCI WorldCom said in a statement it would pay $76 in stock for each Sprint share. The firm, based in Mississippi, said each share of Sprint's wireless unit, Sprint PCS Group, would be swapped for one new WorldCom PCS tracking stock and 0.1547 share of MCI WorldCom common stock.
The exchange ratios give the stock portion of the deal a value of $115 billion. MCI WorldCom will also assume $14 billion in debt and preferred stock, giving the deal an overall value of $129 billion, the firm said.
At that price the deal dwarfs all others to date. That includes oil giant Exxon's planned $80 billion purchase of rival Mobil and the $72 billion deal pending between regional phone companies SBC Communications and Ameritech.
Shares in Sprint, based in Kansas, closed on Monday at $60 on the New York Stock Exchange. They were up at $63.50 in preopening trade on the Instinet electronic broker system. MCI WorldCom's offer represents a 27 per cent premium over Monday's closing price.
MCI WorldCom slipped to $68.37 1/2 from a close of $71.62 1/2. It had wanted Sprint to gain its long-distance service and especially to fill its need for a wireless system. Sprint's fast-growing wireless network covers about 180 million Americans.
"WorldCom will have the capital, proven marketing strength and state-of-the-art networks to compete more effectively against the incumbent carriers domestically and abroad," said Mr Bernard Ebbers, MCI WorldCom's president and chief executive.
MCI WorldCom said the two boards had approved a definitive agreement to merge. The deal is expected to close in the second half of next year and is not expected to hurt WorldCom's earnings per share, the company said.
When the merger is completed, Mr William Esrey, Sprint chairman and chief executive, will become WorldCom chairman. Mr Ebbers will become president and chief executive of the combined company.
In a separate statement, Germany's Deutsche Telekom said yesterday it would sell its 10 per cent stake in Sprint for about $9.2 billion. Despite Telekom reportedly having coveted Sprint itself, analysts were not surprised by its willingness to pull out of the US group and said the capital raised would pad a rather bare war chest and help Telekom back another US alliance. France Telecom also holds a 10 per cent stake in Sprint. The deal may face rigorous regulatory scrutiny. Mr William Kennard, chairman of the US Federal Communications Commission, reacted sharply yesterday to news of MCI WorldCom's proposed $129 billion acquisition of Sprint, saying the firms bore a heavy burden to show the deal was good for consumers.
"Competition has produced a price war in the long-distance market," Mr Kennard said. "This merger appears to be a surrender. How can this be good for consumers? The parties will bear a heavy burden to show how consumers would be better off."
To be completed, the deal must win approval from both the US justice department's anti-trust division and the Federal Communications Commission. Overseas, it would face scrutiny by the European Commission in Brussels.
MCI WorldCom has held no preliminary talks with the EU's anti-trust authority on its planned acquisition of Sprint, a European Commission spokesman said yesterday.
