BOSTON (06/14/2000) - As the government's review of the proposed merger between Sprint Corp. and WorldCom Inc. has taken a decidedly unfavorable turn, Sprint Chairman William T. Esrey said yesterday that he is no longer as optimistic as he once was that the $120 billion deal will be approved.
Speaking Tuesday at Sprint's annual shareholders' meeting in Westwood, Kansas, Esrey cautioned investors about the recent developments within the Department of Justice but remained upbeat about the company's future, with or without a merger partner.
"As you may have read or heard in the media, the staff of the Department of Justice has recommended the merger be blocked," said Esrey in a copy of his speech that was obtained by Computerworld. "It is also apparent that the staff recommendation (to block the merger) is being taken seriously by senior officials at the DOJ. We have had a number of high-level meetings with Justice Department officials in recent weeks, but it remains unclear if we will or will not get the necessary government clearances to implement the merger."
Esrey refused to speculate on the eventual outcome of the deal.
However, Sprint spokesman Bill White said today that Esrey's comments don't mean the company's leader is resigned to the merger being blocked by regulators.
"I think what he tried to do is give an accurate assessment of where the process is right now," White said. "In the next couple of weeks, we'll have a clearer picture of where Justice is at."
Critics of the merger have complained about two key points, according to Esrey.
The first is that the proposal would create one company with a huge concentration in the Internet backbone business. In addition, critics contend that a merger between the nation's second- and third-largest long-distance companies will have a negative effect on long-distance rates.
Steve Koppman, an analyst at Dataquest in San Jose, called Esrey's comments "very significant. I would assume this indicates he has reason to believe it won't be approved."
Esrey discounted both of the concerns made by critics of the merger, arguing that the company has already told regulators that they would be willing to divest Sprint's IP business.
"We have taken the necessary steps that would enable us to seamlessly transfer this business to an acquirer and I'm confident we can execute any required transfer in an effective manner," he said.
Esrey also criticized the claim that the merger would increase prices for long-distance phone service.
"This is an unfounded concern," he said. "Our combined market share will still be below AT&T's."
Instead, he told investors, DOJ regulators should be wary of the existing leaders in the marketplace, AT&T Corp. and the regional Bell operating companies. Those businesses "are trying to reincarnate the old monopolistic telecom era," he said.
To prevent the Baby Bells and AT&T from creating a new monopoly, he said, the WorldCom/Sprint merger would provide the best opportunity to maintain a healthy and strong marketplace.
"The merger will advance competition, and that is what the antitrust laws are designed to do," Esrey said.
"However, if we are prevented from merging the two companies, I firmly believe, and have stated many times before, that Sprint possesses the wireline and wireless assets, brand and employees to be highly successful in the future."
If the DOJ chooses to block the merger, officials at Sprint and WorldCom would have to decide whether to challenge the ruling in court.