Home » NEWS » MCI WorldCom, SkyTel in $.3B Mississippi marriage
`I was a little surprised,` analyst says

MCI WorldCom, SkyTel in $.3B Mississippi marriage

Mississippi financial analysts are still mulling over the $1.3 billion acquisition of Jackson-based SkyTel Communications Inc. by Clinton-based MCI WorldCom, announced May 28.

“I was a little surprised,” said Nancy Lottridge Anderson, a financial analyst and president of New Perspectives Inc. in Clinton. “I hope that means continued growth for the company which means continued growth for Clinton. What’s good for WorldCom is good for Clinton.”

An investment banker, who preferred not to be identified, said MCI WorldCom pulled SkyTel Communications “out of a big hole,” particularly after an investment counselor was hired to look for potential buyers for the company.

Harmon Bays, a financial analyst with Legg Mason Wood Walker, Inc. in Jackson, said the merger is “extremely positive for both companies.”

“WorldCom will be able to utilize Skytel’s expertise in the wireless arena to continue to develop their wireless strategy, and Skytel will be able to leverage WorldCom’s existing business customers to increase the sale of their products to the business community,” he said. “Overall, I think it is a win-win for both companies.”

SkyTel, an international leader in wireless messaging established in 1989, with a total service base of 1.6 million subscribers and annual revenues in 1998 of $518 million, will operate as a separate subsidiary.Under the terms of the agreement, the deal is a stock trade. MCI WorldCom was already the largest reseller of SkyTel paging services.

“The SkyTel merger will be an integral building block in our emerging wireless strategy,” Bernie Ebbers, MCI WorldCom president and CEO, said.

Publicly traded on the stock exchange (NASDAQ: SKYT), SkyTel reported a positive net income for the last quarter of 1998.

Consolidated revenue for that quarter was $138 million, 22% above fourth quarter earnings for 1997. Consolidated operating cash flow was $36.8 million, an 83% increase from the same time period last year and 12% above $32.9 million in the previous quarter.

“MCI WorldCom’s acquisition of SkyTel Communications works well for both companies, which are local, and it bodes well for Mississippi and the South,” said Paul Snow IV, an investment broker with Morgan Keegan in Jackson.

At a recent shareholders meeting in Clinton, MCI WorldCom (Nasdaq: WCOM) announced that investments brought more return than AT&T, GTE or Sprint. Stock prices nearly doubled within the last year, from $44.38 on May 20, 1998, to $86.75 on May 20, 1999. In the same time period, MCI WorldCom quadrupled its market capitalization, acquired an Australian Internet service, a Brazilian phone company, sold its computer operations, issued more than $6 billion in bonds and moved into its new headquarters in Clinton.

MCI WorldCom, which has spent more than a billion dollars on multi-channel, multipoint distribution service (MMDS), said the last mile of service can now be bridged for voice and data, and will allow the company to bypass Bell networks. In 1999, MCI WorldCom will spend $6.6 billion in capital on various technologies.

Even though MCI WorldCom has a payroll of 1,300 people and SkyTel lists approximately 800 employees, all in metro Jackson, Ebbers said the deal will probably not mean elimination of duplicate administrative jobs, but perhaps reassignment of some employees. In fact, MCI WorldCom expects 8% to 10% net employee growth per year, said Scott Hamilton, vice president of investor relations for SkyTel.

Anderson said she’s not sure what the merger means to the metro Jackson area.

“Any time there’s a merger, it’s for the purpose of becoming more efficient, and that sometimes means a reduction in the workforce,” she said. “But then again, with the growth of WorldCom, what they may find is not a loss of jobs but a job transition where some of the employees are doing something different to fill a space in that company.”

SkyTel has been a pioneer in the industry with a history of firsts — the first wireless messaging company to offer alphanumeric paging, international paging, two-way and text-to-voice messaging.

Last summer, SkyTel began a blitz of adding services for customers and partnering with other companies. In June, SkyTel added VClient Lotus Notes, a service that allowed customers who use PageWriter 2000 to compose, send, receive and reply to corporate e-mail from just about anywhere.

Last July, SkyTel tapped into the Latin American market, where less than 1% of the population has pagers, via its subsidiary, Mtel Latin America. The same month, SkyTel linked up with Big Planet, Inc., a leading network marketing company that distributes and sells technology solutions for consumers, small businesses and home office markets, and with Silicon Valley-based DataLink to provide customers with stock quotes tailored to their portfolios.

In December, SkyTel linked with Bloomberg to provide a variety of financial news feeds and customized portfolio information to its advanced messaging subscribers. Earlier this year, SkyTel partnered with Office Depot, the nation’s largest seller of office products, to distribute advanced messaging devices and teamed up with ValuePage to develop a program to expand coverage to the small business community.

Last month, SkyTel announced its partnership with eBay, the world’s leading person-to-person online trading organization, and eLink, a service that allows unlimited e-mail to be forwarded from the Internet to a wireless pager.

Even though SkyTel had been aggressive with strategic partnerships of late, subscriber growth for the first quarter of 1999 was below expectations. Although earnings were in line, and a positive net income was reported for the last quarter of 1998, industry analysts had indicated speculation about a possible sale.

About Lynne W. Jeter

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