Digex, WorldCom reach settlement

(Telephony) The parties in the lawsuit threatening WorldCom’s backdoor acquisition of Digex have agreed to a settlement.

When WorldCom agreed to acquire Intermedia Communications last September, WorldCom executives stated plainly the move was made to gain control of Digex, the data-services company majority owned by Intermedia.

Digex minority shareholders, believing that their stock had been devalued by the deal, filed suit against the WorldCom and Intermedia, claiming that Digex board members affiliated with Intermedia improperly waived the company’s rights under section 203 of the Delaware code.

Section 203, designed to protect companies against hostile takeovers, prevents a new stockholder of a company from working with that company for a three-year period unless the action is approved by 2/3 of minority shareholders.

Under the terms of the settlement, which must be approved by the Delaware Chancery Court, the WorldCom/Intermedia stock transaction ratio will be reduced to 1:1 from $39 of WorldCom stock for every share of Intermedia. WorldCom also will enhance its sales-channel agreement, which could generate as much as $500 million in revenue for Digex over three years.

WorldCom also will give Digex space in hosting facilities worldwide and will fund the data-services provider’s business plan for the next two years.

“The terms of the settlement represent significant potential value to Digex shareholders,” said Mark Shaw, Digex president and CEO. “In addition, the settlement represents a major milestone in completing WorldCom’s acquisition of Intermedia, and thus solidifying its ownership position in Digex.”

For the minority shareholders who filed the suit, $165 million will be placed in a fund. After deducting attorney’s fees, half will be distributed to Digex’s class A common stockholders of record on September 1, 2000 and half to shareholders as of a future date to be determined