February 26, 2001, 4:32 PM — WORLDCOM ANNOUNCED ON Thursday that its merger with the parent company of Web hoster Digex is a step closer to reality.
Displeasure among certain Digex stockholders over the terms of the proposed merger between WorldCom and Digex's parent company Intermedia in Tampa, Fla., has been holding up the deal.
Digex investors filed a lawsuit to stop the merger from going forward under its original terms. Specifically, those Digex shareholders reportedly disliked the terms brokered between WorldCom and Intermedia and believed they would have done better under a scenario where WorldCom bought Digex directly, said a source familiar with the case.
WorldCom now has come up with a proposed settlement to put before the Delaware Chancery Court, where the suit was lodged.
Components of the settlement include a new fixed stock exchange ratio of 1:1, which cannot be adjusted, and a $165 million settlement fund to be paid out to investors.
WorldCom also spelled out other commercial arrangements, such as a sales channel agreement that formalizes how the two companies will do business together. Such terms work to guarantee that Digex will do a certain level of Web-hosting business on behalf of WorldCom. These agreements are necessary, from WorldCom's perspective, since Digex will act only as an affiliate and will not become part of WorldCom through the deal, the source said.
The proposed settlement has cleared the boards of directors at WorldCom, Intermedia, and Digex.
Because changes to the deal do not have to be floated by government regulators -- which have already blessed the merger -- WorldCom expects to close the transaction during the second quarter.