By Christopher Stern Washington Post Staff Writer
Tuesday, July 13, 2004; Page E01
Leucadia National Corp., a New York buyout firm, has expressed interest in acquiring a controlling stake in MCI Inc., raising new questions about the telecommunications giant's future just three months after it emerged from bankruptcy.
MCI issued a statement yesterday saying the takeover specialist plans to ask the Federal Trade Commission and the Department of Justice for antitrust approval to acquire at least 50 percent of MCI's common stock. Based on yesterday's closing price, a stake that large would cost Leucadia at least $2.75 billion.
Leucadia declined to comment, and it was not clear yesterday that the investment firm had lined up financing. It took Leucadia two years to buy a much smaller telecommunications firm, according to regulatory filings. It also could not be determined if the firm had even formally begun the process of seeking the necessary government approvals.
The takeover bid comes as Ashburn-based MCI continues to struggle financially after eliminating about $35 billion in debt through the bankruptcy process. Last month, MCI announced it would lay off another 2,000 workers, bringing the total job reductions in the last year to more than 15,000.
MCI filed for bankruptcy protection in July of 2002 after a massive accounting scandal. The telecommunications giant has 15 million customers and is now the nation's third-largest long-distance company behind Verizon Communications Inc. which has approximately 16 million customers. AT&T Corp. had 30 million customers as of the end of 2003.
Leucadia specializes in acquiring troubled businesses and turning them around. Its portfolio includes real estate, mining, petroleum and telecommunication interests. Among its holdings are two relatively small telecommunications companies, WilTel Communications Inc. and ATX Communications Inc. Leucadia acquired its controlling stake in both companies while they were in bankruptcy.
MCI declined to comment on Leucadia's intentions beyond a press release stating that the investment firm was applying for regulatory approval. Officials at both the FTC and the Justice Department said such applications are confidential and referred calls to the companies.
Investors responded by bidding up the stocks of both companies. Shares of MCI are not currently traded on a major exchange, although the stock does change hands through the so-called pink sheets, an electronic market that does not require trading companies to meet any financial criteria. Shares of MCI (MCIA) shot up $2.45, or more than 16 percent, to close yesterday at $17.05. MCI said yesterday that it plans to begin trading its shares on the Nasdaq electronic market on Wednesday, according to company spokesman Peter Lucht.
It is not unusual for shares of an acquiring company to fall on the day that a major deal is announced, as investors worry about taking on new debt. Instead, Leucadia's shares rose 2 percent, or $1.12, to close at $50.05. "The interesting thing is that both Leucadia and MCI have popped up; obviously people think this would be a good thing," said James Andrew, vice president of Adventis, a telecommunications consulting firm.
Some industry analysts regarded MCI's announcement as a sign that the company is about to be put on the auction block.
