MCI up for grabs?

After years of being the acquirer, MCI may soon be the target of an acquisition: On Monday, the carrier announced that Leucadia National has taken a keen interest following its recent emergence from bankruptcy. In fact, Leucadia has expressed said interest to the Federal Trade Commission and the Justice Department, testing the waters for any anti-trust problems.

The big question, however, is why. After two years of scandal, bankruptcy and falling revenues, MCI hardly seems the most attractive acquisition target. Admittedly, the company is now practically debt-free and its stock price is a bargain compared to its value during the boom (at current prices, MCI has market valuation of $5 billion--not even half the cost of the accounting fraud that drove it into bankruptcy.) But there are many lingering problems. MCI is still gigantic, a loose conglomeration of dozens of companies pieced together during the WorldCom growth years. Despite its relief from debt service, the carrier's revenues have suffered dramatically during the bankruptcy years--and MCI's own projections for the next two years don't offer much encouragement, either.

More puzzling still is Leucadia's particular interest. Leucadia is known for buying companies out of bankruptcy when they're at their lowest point, not after they've reached the recovery point, like when it bailed out Williams Communications in 2002 with $330 million. (Oddly enough, Leucadia also helped finance Williams' purchase of its old WilTel name back from WorldCom, which the latter had acquired during its acquisition spree in the 1990s.) Getting regulatory approval will be difficult enough, but what does Leucadia plan to do with its sizable investment in WilTel if it suddenly controls one of the largest backbone carriers in the world?

It seems like we're missing a few key details, and the whole business might just be a red herring. One thing is for certain, though: Despite all of its efforts to return to business as usual, MCI--WorldCom or not--remains a magnet for controversy.

E-mail me at kfitchard@primediabusiness.com.