MCI WorldCom Inc., the nation's second-largest long-distance telephone company, has reached a deal to acquire wireless messaging firm SkyTel Communications Inc. of Jackson, Miss., for about $1.2 billion in stock, the companies announced yesterday.
The agreement comes just weeks after MCI WorldCom, also based in Jackson, called off talks to acquire wireless firm Nextel Communications Inc. of Reston. The companies had failed to agree on a price. In January, MCI WorldCom dropped out of the bidding for cellular company AirTouch Communications Inc.
Many analysts feel that wireless is a serious hole in MCI WorldCom's portfolio of services. Yesterday's deal, if completed, would help to close that gap, building on several recent acquisitions of companies that provide cable TV and Internet service over the air.
The SkyTel acquisition is "a building block in our wireless strategy," MCI WorldCom spokesman Frank Walter said.
Rumors of a SkyTel-MCI WorldCom deal have been swarming ever since SkyTel hired investment banking firm Warburg Dillon Reed earlier this year. The buzz grew louder last week when online service Company Sleuth reported that MCI WorldCom had registered the Internet domain name skytelworldcom.com." MCI WorldCom later claimed that move was the act of a lone employee working on the company's Web sites.
MCI WorldCom said it decided to keep the name, suggesting that it might use the site in the future since it had a long-standing marketing agreement with SkyTel, which has 1.6 million customers.
MCI WorldCom has been in discussions with SkyTel for a couple of months, Walter said. He added that the two companies know each other well and hope to combine much of their management teams. MCI WorldCom is already a reseller of SkyTel Services, offering its paging products under the MCI WorldCom name.
On the face of it, the deal is less of a financial risk for MCI WorldCom than the Nextel acquisition, which would have saddled the buyer with nearly $7.7 billion in long- term debt. (MCI WorldCom will assume about $344.6 million in debt in the SkyTel deal.)
SkyTel had 1998 sales of $518.3 million and a net loss of $80.6 million.
"I think it's a reasonable, decent move for them," said Frank Dzubeck, president of Communications Network Architects in Washington, a telecommunications consulting firm. But, he added, it is not the knockout move the Nextel acquisition would have been.
"They have to build something instead," Dzubeck said.
One benefit to starting from scratch, Dzubeck said, is that MCI WorldCom can focus on building what the wireless industry has dubbed a third-generation system. These systems have greater capacity for carrying voice and offer multimedia capabilities, but can be difficult and expensive to build.
Walter stands by MCI WorldCom's explanation that the company employee had no knowledge of the merger when he secured the Internet domain name. But, he said, do not look to the Web for hints of MCI WorldCom's wireless moves in the future. "There will be much tighter restrictions," on who registers for what, he said.
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