Leucadia bids on MCI

MCI today said investment firm Leucadia National is attempting to buy a controlling stake in the carrier. MCI said Leucadia, which owns a controlling stake in WilTel among other holdings, notified the MCI board that it plans to file for regulatory permission to assume a 50% stake in the company.

If Leucadia’s application passes anti-trust muster with the Federal Trade Commission and the U.S. Department of Justice, MCI would find itself an acquisition target for the first time in its history. The company itself was off of dozens of acquisitions over 10 years, leading up to the company’s record bankruptcy filing two years ago. MCI emerged from bankruptcy earlier this year free of debt, but with its revenues severely threatened.

Leucadia’s investment in WilTel could also present a problem. As a backbone carrier, WilTel competes with MCI, though on a much smaller scale, and an acquisition would pit the two companies against one another. After MCI made its announcement shares of the company jumped 10.6% in early trading.

Patrick Guzman of Guzman and Co. postulated that Leucadia may have started a long-awaited bidding war for MCI. Because of poison pill provisions written into MCI’s bylaws to protect against a hostile takeover, Leucadia would have much difficulty buying 50% of MCI’s stock outright. Leucadia will most likely try to cherry pick shares over time on the open market, Guzman said. But MCI may attempt to broker with Leucadia an outright purchase for the entirety of the company, thus bypassing the poison pill provisions, Guzman said.

Regardless of how Leucadia plans to execute its buyout, Guzman said, other carriers that have had interests in MCI will probably pay close attention. The most likely counter-bidder would be BellSouth, Guzman said. BellSouth has indicated it would be interested in either AT&T or MCI to enter the large enterprise global landline market. Another potential bidder would be SBC, Guzman said.

"The Leucadia announcement could set off the landline consolidation in the industry that it so desperately needs," Guzman said in a research note. "If AT&T smells that BellSouth is going to bid for MCI, AT&T could come down in price and try to entice BLS [BellSouth] to purchase it rather than MCI. Certainly, if LUK [Leucadia] were to win MCI then BLS would bid for AT&T."