A unit of MCI WorldCom will make a cash offer for the complete acquisition of OzEmail in a deal expected to challenge the Australian Internet service provider's most significant competitor, Telstra.
The US-based telecomms giant yesterday announced its wholly-owned subsidiary UUNET Holdings Australia will offer to buy all the issued ordinary shares of OzEmail for $3.55 ($US2.20) a share.
OzEmail has 146.7 million ordinary shares issued, valued at about $521.4 million ($US322.8 million), the US company said in a media statement.
MCI WorldCom has already purchased 14.9 per cent of the Australian ISP or 21.9 million newly issued ordinary shares at $3.23 ($US2) a share, the company said.
OzEmail spokesperson Michael Ward told ComputerWorld the company expected the move, indicating it strengthens MCI WorldCom's existing entry into the local telecommunications market.
"MCI wants to make a substantial foray into this market and they see this as an important step," he said. "The directors have indicated it is a reasonable offer."
However, Ward said the executive will not make any formal recommendation to shareholders until they have read a formal proposal for the complete acquisition of OzEmail expected shortly.
Ward said the immediate benefit to local users is the availability of more Internet bandwidth courtesy of MCI WorldCom's international backbone, indicating it strengthens its stand against Telstra. "Our competition is Telstra, that's the way it sits right now," he said.
Telecommunications consultant Paul Budde described the deal as "absolutely fantastic". He said it provides OzEmail with the resources, cash and innovation it needs to achieve ongoing growth.
"The combination of two lean, eager companies going for that sort of [corporate and consumer ISP] business is fantastic," he said.
The deal is contingent on several conditions being met including government and regulatory approvals, and MCI WorldCom becoming entitled to at least 90 per cent of OzEmail.
If the offer succeeds, OzEmail would become the Internet "operating arm" of UUNET Holdings Australia, the companies said. The ISP has around 80 POPs (points of presence) in Australia along with 15 POPs in New Zealand.
According to MCI WorldCom, the offer will remain open for at least one month from early January.
The company reports OzEmail directors Sean Howard, Malcolm Turnbull and Trevor Kennedy, who together held 54 per cent of the company prior to the share issue, have agreed to accept the offer and recommend other shareholders do likewise in the absence of a higher bid.
OzEmail closed on the ASX at $3.58 last sale on Monday.