July 02, 2002, 2:55 PM — Telecommunication firm IDT Corp. is interested in a multibillion purchase of WorldCom Inc.'s local phone service for businesses, but an imminent deal is unlikely because of resistance from WorldCom, according to IDT Chairman Howard Jonas.
IDT, which is based in Newark, New Jersey, and generated $1.2 billion in revenue in fiscal year 2001, has informally approached several banks working with WorldCom to offer $3 billion to $4 billion in cash and stock for the local corporate phone service assets WorldCom acquired in 1996 through its purchase of MFS Communications Co. Inc.
That $12.5 billion deal also brought to WorldCom the network controlled by UUNet Technologies Inc. IDT isn't looking to pick up UUNet, which will likely sell for more than IDT could afford, Jonas said.
His company's goal is to buy the MFS local network and cross-sell it as a redundancy safeguard to customers of its Winstar network of telecommunication services for businesses. IDT formed the unit after acquiring most assets from bankrupt Winstar Communications Inc. in late 2001.
"We really think we could make more on MFS than (WorldCom) can, because we can offer backup service on Winstar. MFS offers customers a single line out. If there's a fire, a flood, if the thing goes out, it's gone. It would be very easy to tell customers they can, say, pay an extra 20 percent and get redundancy on Winstar," Jonas said. "We can offer two complementary competitors."
News of IDT's interest in WorldCom's MFS assets first surfaced in a Wall Street Journal article posted online late Friday. The status of IDT's offer has since then been "changing minute by minute," according to an IDT representative. Jonas said IDT's impression is that WorldCom hopes to survive without selling off its MFS operations.
Representatives of WorldCom, based in Clinton, Mississippi, did not return calls seeking comment.
If WorldCom files for bankruptcy, a move many analysts say is becoming unavoidable, it will almost certainly be forced to sell its MFS operations, which are one of its most valuable assets. But Jonas said he'd rather buy the operations in advance of a bankruptcy, citing what he perceives as a hemorrhaging WorldCom customer base.
"Usually, I'd say I'd rather buy in bankruptcy because you get it cheaper. But it costs a certain amount to keep that network going, and once you fall below a certain threshold (of customer accounts) you start experiencing cash burn to maintain the networks," Jonas said. "Once they bleed to a certain extent, it's not worth anything. They could give it away for nothing and I wouldn't take it."