Business News - WorldCom to Acquire Intermedia

Posted: 10/2000

WorldCom to Acquire Intermedia

Telecommunications giant WorldCom Inc.
(www.wcom.com) has signed a $6 billion agreement in equity and debt to acquire Intermedia Communications Inc.
(www.intermedia.com), a Tampa, Fla.-based CLEC with an attractive portfolio.

The deal, which is subject to regulatory and shareholder approvals, would give WorldCom a controlling 55 percent interest in Intermedia’s Digex Inc.
(www.digex.com), a leading provider of managed web and application hosting services. The boards of directors of
Digex, Intermedia and WorldCom approved the transaction at Sept. 1 meetings.

Digex’s assets sealed the deal for WorldCom, which is expanding its Internet business as long-distance calling prices drop. Digex manages corporate company web sites.

WorldCom will target the managed web-hosting arena to enhance its revenues, according to Bernard J. Ebbers, company president and CEO. Ebbers says he expects that managed web hosting could produce a $17 billion revenue stream industry wide by 2004, up substantially from today’s roughly $2.5 billion to $3 billion.

Acquiring a controlling interest of Digex is the “fastest, most advantageous way for us to get there,” Ebbers says.

With this merger, WorldCom accelerates by 12 to 18 months our ability to provide world-class managed web and application hosting services — one of the highest growth markets in the industry. This merger will strengthen both Digex and WorldCom by creating premier web hosting products and services that our customers are demanding,” Ebbers said.

Analysts are intrigued with WorldCom’s move.

“I think the
Worldcom/Intermedia Deal makes sense from the standpoint that it provides a web hosting capability to WorldCom,” says Don Lynch, president of Lynch Associates
www.lynch-associates.com). “I think that the traditional long-distance business is slowing and is not as attractive as it once was, therefore long-distance firms are looking to provide [more] to their customers beyond simple long-distance. They are looking complete packages of services.

“I think we will continue to see these type of deals that allow firms to better complete their offerings in spaces where they want to go,” Lynch added.

WorldCom already owns UUNet
(www.uunet.net), which some analysts say has seen its chunk of the pie get smaller as newer companies such as Digex got in on the Internet backbone game. So the acquisition of Digex is viewed as a logical expansion, says telecom attorney Mitchell F. Brecher of Greenberg Traurig
(www.gtlaw.com). “Given the difficulties being experienced by CLECs and the rapid decline in interexchange service pricing, I read this transaction as a major effort by WorldCom to shift its focus — or at least an important part of its focus — from being a telecom network operator to becoming a significant player in e-commerce.”