WorldCom, the No. 2 U.S. long-distance telephone company, said today it would buy telecoms operator Intermedia Communications in a $3 billion stock deal that would expand WorldCom’s Internet-hosting business.
The company said in a statement that it also would assume $3 billion in Intermedia debt.
WorldCom and Tampa, Fla.-based Intermedia said today in announcing the deal that their boards approved the transaction on Friday.
The deal is subject to approval by shareholders and by the U.S. Department of Justice and Federal Communications Commission.
WorldCom is the nation’s second biggest long-distance service provider after AT&T Corp. It abandoned a plan to buy No. 3 Sprint Corp. for $129 billion earlier this year in the face of regulatory opposition.
WorldCom will pay $39 for each of Intermedia’s outstanding shares, or approximately $2.9 billion.
Intermedia provides voice and data services to more than 90,000 business and government customers across the United States and is listed as one of the nation’s top independent competitive local exchange carriers.
Intermedia offers local and long-distance service and provides Internet and data services through its 64 percent stake in Digex, a Web-hosting firm.
WorldCom said it would gain a controlling stake in Digex, which has been up for sale since July.
Worldcom said that under a merger agreement it and Intermedia had signed, Worldcom would own 55 percent of Digex’s equity and hold a 94 percent voting stake.
“Given WorldCom’s increasing emphasis on the fast growing Internet business, I think this proposed acquisition makes sense from a strategic standpoint,” said David Burks, an analyst with J.J.B. Hilliard W.L. Lyons in Louisville, Ky.
Beltsville, Md.-based Digex hosts Web sites and other Web-based applications for more than 550 customers, including large retailers like J. Crew, automotive manufacturer Nissan and others. It operates two data centers in the United States and one in the United Kingdom.
Digex reported 1999 revenue of $59.8 million, but lost $65 million during the fiscal year.
WorldCom president and CEO Bernie Ebbers said the stake in Digex will accelerate his company’s deployment of Web-based hosting services and applications by 12 months to 18 months.
“This merger will strengthen both Digex and WorldCom by creating premier web hosting products and services that our customers are demanding,” he said in a prepared statement. “Digex will offer an unmatched, comprehensive suite of access, transport, and applications solutions to customers around the globe.”
“This makes sense especially after the Sprint misfire,” said Scott Cleland of The Precursor Group, an independent research company in Washington, D.C. “Web hosting is a strategically important traffic generator for WorldCom’s Internet backbone.”
The Associated Press and Reuters contributed to this report.