WorldCom, Sprint to sell assets for antitrust approval

However, it remained unclear if the move would be enough to win critical approval from the Justice Department, where key antitrust officials had recommended that the merger be blocked before this week8217;s proposals were made in an attempt to salvage the pact.

While talks continued in Washington, some participants said a decision in the case no longer appeared imminent and could take another week or more as both sides evaluate the complexities of a divestiture of Sprint8217;s long-distance business.

A significant part of the equation is the rigid timetable of the European Commission, which must have a proposal to act on by early July. Depending on how long it takes to review the proposed divestitures now on the table, one option is that the companies could withdraw from the EU review and re-file once a settlement has been worked out.

quot;This remains a fluid situation,quot; one participant said.

There are big questions remaining as to whether Sprint itself would allow the divestiture. WorldCom and Sprint are still two independent companies, bound only by a merger agreement, and Sprint8217;s board may not go along with the proposal. WorldCom, which has made itself into a telecommunications powerhouse through more than 60 acquisitions, would also likely face a multibillion-dollar tax bill from separating Sprint8217;s core long-distance business from its wireless assets. Sprint, Westwood, Kan., and WorldCom, Clinton, Miss., declined to comment.

quot;When you think about the implications for Sprint, you are talking about breaking the company up,quot; said Frank Governali, a telecommunications analyst with Goldman, Sachs amp; Co. quot;This introduces a significant new uncertainty to the deal.quot;

If the parties do not come to an agreement in the next several days, WorldCom is unwilling to fight the Justice Department in court, people close to the situation said. But if an accord is reached, WorldCom could end up with the only asset it really wanted: Sprint8217;s wireless operations.

Selling all or most of Sprint, excluding its wireless unit, could address the Justice Department8217;s two main concerns: domination of Internet backbone services and overconsolidation in the long-distance business. One complication is finding a buyer that is acceptable to antitrust enforcers, who will demand that any sale leave a strong competitor in those markets. Indeed, antitrust enforcers often insist on approving such deals in advance.

Still, any Sprint divestitures would likely spark a renewed frenzy of deal-making in the telecommunications industry as all the world8217;s carriers decide whether to bid for one of the last remaining national long-distance networks in the US. Such a scenario is also likely to play out if the proposed merger falls apart, leaving both Sprint and WorldCom unattached.

WorldCom has had some issues in the past when forced to shed assets to appease regulators. When the company acquired the former MCI Communications in 1998, WorldCom sold that company8217;s Internet backbone to Cable amp; Wireless PLC but experienced problems transferring all the customers and employees promised. Cable amp; Wireless sued WorldCom for damages, and the two sides recently settled out of court.

WorldCom and Sprint have very little time to sort things out. In Europe, the regulatory review is bound by strict statutory deadlines.

In the US, analysts were mixed about the implications of the latest proposals. Some voiced concern that Worldom would be sacrificing nearly all the estimated 2 billion in expected cost savings by selling so many Sprint assets that would have been combined with similar WorldCom units.

quot;Here you paid a big premium for these assets and you won8217;t get any benefit from it,quot; said Eric Strumingher of Paine-Webber Inc. Still, others said that the compromise would allow WorldCom, which lacks a cellular business, to get Sprint8217;s wireless operations.