WorldCom One Step Closer to Digex

Merger would marry big pipe network with world-class Web hosting firm, after divorcing, err ... divesting interest in Intermedia.

by Jim Wagner [January 18, 2001]

WorldCom Inc., with a little help from the Federal Communications Commission, moved one step closer to merger approval with Internet backbone and hosting company Intermedia Communications Inc. this week.

The world's largest Internet backbone carrier is near to getting its hands on an Internet services company which slipped through its fingers last year when it scrapped its $120 billion merger plan with Sprint Inc., after Justice Department officials threatened to block the merger in the courts.

The WorldCom-Intermedia merger would marry WorldCom's huge data network with Intermedia's Web hosting services and co-location division, Digex Inc. Digex has garnered a reputation as a world-class Web hosting provider and is the main reason WorldCom has been trying to strike a deal with Intermedia.

Peter Lucht, WorldCom spokesperson, said the FCC's blessing is a good first step.

"This is a significant step for everyone here at WorldCom," Lucht said. "We look forward to getting state's approval and concluding the merger, which should happen by the end of the first quarter."

In November, it looked like the Department of Justice was going strike another blow against the carrier, nixing the deal between WorldCom and Intermedia.

Instead federal regulators decreed WorldCom could keep its majority holding in Digex as long as it divested all remaining assets of Intermedia within six months of the final merger approval. Lucht said the FCC's conditions today didn't go further than what was ruled by the Justice Department in November.

A hurdle still remains for the long-distance company, however. While it's likely WorldCom can still move forward with the merger, there remains the imminent legal battle with minority shareholders at Digex.

WorldCom's merger with Intermedia would hand it a 55 percent ownership slice and 95 percent voting authority of Digex, something minority shareholders are loathe to give. What's more, these minority shareholders say, their legal rights were waived, preventing them from voicing an opinion on the upcoming merger.

As such, the minority shareholders have filed a lawsuit against five directors at WorldCom and Intermedia. Lucht said he would rather avoid speculation on the case at this time.

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