Bride or Bridesmaid? AT&T and MCI May Compete for Suitors
Onetime telecom titans AT&T Corp. and MCI Inc. have been at each other's throats since 1968. Now, with their futures looking bleak, the two are shaping up for what could be a final battle over which company can be sold off first.
So far it looks like a dead heat of dead deals. Both companies face a profit-sapping technology shift and a hostile regulatory environment. A price war has pitched sales into a decline. AT&T's revenue, for instance, was down 13% last quarter alone.
How bad is it? Nine years ago, the average AT&T long-distance subscriber was making 143 minutes of calls each month, according to government data. Cellular telephones, e-mails and text messaging have pushed down that number to just more than 60 minutes.
That forced AT&T, Bedminster, N.J., to make a humbling retreat from the consumer long-distance business last month. Of course, bad news doesn't stop troubled companies from being sold, telecom bankers and industry analysts point out. But AT&T and MCI (the former WorldCom) have been hard to sell because the bad news shows no sign of ending, and the rate of decline has proved impossible to predict. Last April, for example, MCI cut the financial guidance for the year that it had given in January. AT&T did the same in June.
AT&T Chief Executive Dave Dorman hasn't discussed his company's merger strategy. He has said that the industry needs to shrink to return to health. That has largely mirrored the comments of MCI Chief Executive Michael Capellas, who said in a recent television interview that he expected three or four huge players to eventually dominate the U.S. telecom industry.
So how to get AT&T or MCI off the auction block? "Beg Verizon to take it," said one top telecom banker.
Investors in MCI, which recently emerged from Chapter 11 bankruptcy protection, have done just that, say people familiar with the matter, holding meetings with Verizon Communications Inc. executives to bring attention to the Ashburn, Va., firm.
There have been no takers. New York-based Verizon and fellow local carriers SBC Communications Inc. and BellSouth Corp. are more keen to invest in the telecom sector's high-growth areas, such as wireless and broadband. While they are interested in moving into telecom services for large corporations, they have had some initial success building it on their own.
These Baby Bells still need to buy either company to have a true role in the corporate-telecom business -- but it will have to be at the right price. The problem is that virtually nobody on Wall Street has confidence about what that means.
People who have worked the numbers on AT&T and MCI essentially value the consumer businesses at zero. The tricky part is assessing the value of their core operations: selling voice and data services to the world's largest corporations. MCI, for its part, is caught in a bind. Its gross margins are lower than those of its competitors, which means it will have to cut more costs as its revenue continues to erode. In a recent report, J.P. Morgan's Jason Bazinet expects AT&T's free cash flow to decline at a double-digit rate over the next five years.
Some bankers say the real value of AT&T or MCI is in their hard assets, with only a small premium to be paid for their ongoing businesses. "When fundamental business trends shrink, then value shrinks with it," says another top adviser to telecom companies. For those pondering a purchase, "it's best to wait."
That becomes clear when considering a deal that BellSouth had on the table for AT&T last fall. At the time, BellSouth was considering making an offer of about $19 billion in cash and stock, or about $24 per share. BellSouth, Atlanta, eventually backed away, a wise decision considering that AT&T is today valued at about $12 billion, or $15.10 a share. The company also is carrying about $7.8 billion in net debt on its books.
It is the lower level of net debt -- $1 billion -- that is one of MCI's strongest selling points. Analysts generally regard AT&T as having a more tightly integrated network, a superior set of clients and a stronger balance sheet.
But a potential buyer could get all of MCI's vast assets and a solid client roster for about one-third of AT&T's value. Assuming an MCI buyer would pay about a 10% stock premium to Friday's market capitalization of $4.8 billion, that would represent less than two years of earnings for either Verizon or SBC.
Of all the Baby Bells, San Antonio-based SBC is regarded as the most likely to strike first. Verizon is wrestling with a complicated wireless joint venture with Vodafone Group PLC, and BellSouth has traditionally proved deal-shy.
AT&T, meanwhile, is hoping that its larger customer base can help it outlast MCI in its brutal price war. The battle has forced margins down at both companies, with MCI's margins in the low teens, compared with AT&T's, which are in the twenties. The risk that AT&T runs, bankers say, is that this competition will put MCI into the hands of a suitor first, limiting AT&T's own options as a takeover target.
In fact, MCI has gotten the only public expression of interest to date -- from Leucadia National Corp. In a filing made by MCI, the New York distressed-investing firm showed interest in acquiring more than 50% of the company's shares, though it remains unclear if, how and why Leucadia will complete its plan.
Leucadia's move was widely interpreted as a way to flush out other potential bidders for MCI. Leucadia declined to comment.
The move nonetheless raises the question of whether either company could be taken private by a leveraged-buyout firm. These buyers have taken a strong look at both companies, according to bankers familiar with their work. The buyout shops would be eager to invest in either firm, they say, if they could get some confidence in the businesses' rate of decline. That hasn't happened, bankers say.
AT&T和MCI竞相兜售自己
从前的电信巨头美国电话电报公司(AT&T Corp.)和MCI Inc.自1968年以来一直在争斗不休。现在，由于前景黯淡，这两家公司又在可能是最后一场的战斗中比赛著谁能最先将自己卖掉。
迄今为止双方在这场暗中较量中似乎还不分胜负。两家公司都面临著技术发展导致的利润下滑以及监管环境不利的困境。价格战使销售下降。比如，AT&T的收入上季度就下降了13%。
情况到底糟糕到何种程度？根据政府机构的统计，9年前，AT&T每位长途订户每月平均打电话143分钟。手机、电子邮件和短信息已经使这一数字下降到60多分钟。
这迫使AT&T上个月开始从消费者长途电话业务开始灰溜溜地撤退。电信业银行家和行业分析师指出，坏消息并没有让陷入困境的公司无法卖掉。但AT&T和MCI（前WorldCom）却一直难以出手，原因在于坏消息似乎没完没了，业务滑坡的速度也无法预测。比如，MCI在4月份下调了曾在1月份时作出的财务预期。AT&T也在6月份作出同样举动。
AT&T的首席执行长戴夫?多尔曼(Dave Dorman)尚未讨论其公司的并购战略。他曾表示，该行业需要收缩才能恢复良性发展的势头。这与MCI首席执行长迈克尔?卡佩拉斯(Michael Capellas)的讲话如出一辙，卡佩拉斯在最近接受电视采访时称，他预计最终将由3到4家大公司控制美国电信市场。
那么如何让AT&T或MCI摆脱目前的拍卖困局呢？一位高级电信业银行家称：“去求Verizon买下它吧。”
知情人士称，MCI的投资者正是这样做的。他们与Verizon Communications Inc.的管理人员举行了会谈，希望能引起该公司的注意。
接手者一时还无法找到。Verizon与同时本地运营商的西南贝尔公司(SBC Communications Inc., SBC)和南贝尔公司(BellSouth Corp., BLS)更热衷于投资电信业的高增长领域，如无线和宽频。尽管它们对进入大企业电信服务领域感兴趣，但已经通过自己的努力取得了初步成功。
这些小贝尔公司(Baby Bell)仍需要买进两家公司中的一家，这样才能真正进入企业电信业务领域，但应该是以适当的价格。问题在于，华尔街几乎没有一个人能确切无疑地知道这意味著什么。
研究AT&T和MCI的人们对其消费者业务的估价基本都是零。难点在于评估其核心业务──向全球大公司提供语音和数据服务业务的价值。MCI就深陷泥潭。该公司的毛利润率低于其竞争对手，这意味著在收入继续下滑的情况下，该公司需要削减更多的成本。JP摩根分析师(J.P. Morgan)贾森?巴齐内(Jason Bazinet)在最近的研究报告中预计，AT&T的自由现金流在今后5年内将以两位数的速度下滑。
部分银行家称，AT&T或MCI的实际价值就是其硬性资产，对其持续经营业务仅需付很少一部分溢价。另外一位电信公司的高级顾问称，当基础业务趋势收缩时，价值就会随之收缩。对考虑进行收购的公司而言，最好还是继续等待。
看看南贝尔公司(BellSouth Corp., BLS)去年秋季与AT&T的谈判，这一切就一目了然了。当时，南贝尔公司考虑以大约190亿美元的现金及股票收购AT&T，约合每股24美元。南贝尔公司最终放弃了这一想法，考虑到AT&T目前的价值仅有120亿美元左右，合每股15.10美元，这无疑是一个明智之举。该公司帐面上还有大约78亿美元的净债务。
而MCI的净负债较低，仅有10亿美元，这也是该公司的最大卖点。分析师普遍认为AT&T拥有整合更为紧密的网络，更高层次的客户，以及更强劲的资产负债表。
但潜在的买家却可以用约合AT&T三分之一的价值获得MCI的全部资产和稳定的客户群。假定MCI的买家较上周五48亿美元的市值付出约10%的股票溢价，则总价还不到Verizon或西南贝尔公司两年的利润。
在所有小贝尔公司中，西南贝尔公司被认为是最有可能首先采取行动的公司。Verizon与沃达丰空中通讯公司(Vodafone Group PLC, VOD.LN)之间复杂的无线合资公司已使其难以脱身，而南贝尔公司一直就不热衷于并购交易 。
与此同时，AT&T则希望其更大的客户群会帮助它在残酷的价格战中战胜MCI。价格战导致这两家公司的利润率双双下降，MCI的利润率目前为10%-14%，而AT&T则为20%左右。银行家称，AT&T的风险在于竞争将把MCI首先推到竞购者手中，降低AT&T成为收购目标的可能性。
事实上，迄今为止仅有Leucadia National Corp.一家公司公开表示对收购MCI感兴趣。在MCI提交一份报告中，Leucadia对收购MCI 50%以上的股份表示出了兴趣，但还不清楚Leucadia是否会完成这个计划，其收购方式和动机也不得而知。
Leucadia的举动被普遍认为是为了打消其他可能对MCI感兴趣的竞购者的念头。Leucadia对此不予置评。
这无疑会让人产生一个疑问，即是否这两家公司会被一家杠杆收购企业改制为非上市公司。据了解情况的银行家称，许多买家一直对这两家公司虎视眈眈。他们称，如果这些买家能确定其业务的下滑速度，他们很可能进行投资，但实际情况并非如此。
