WorldCom Appeals EU Merger Block

WorldCom (Nasdaq: WCOM) has gone to court to appeal the European Commission’s rejection of its proposed merger with rival phone company Sprint (NYSE: FON), saying the decision was misguided.

The companies called the merger off on July 13th. However, according to WorldCom general counsel Michael Salsbury, “the implications of the commission’s decision for WorldCom, for our customers, and for the Internet industry as a whole compel us to file this appeal so that the decision does not become the basis for future commission actions or initiatives.”

EC ‘Misperceived’ Marketplace

“The commission fundamentally misperceived both how Internet services are provided and the highly competitive nature of the Internet marketplace,” Salsbury said.

Worldcom said it also asked the European Court of First Instance in Luxembourg to annul the EC’s June 28th decision on jurisdictional and procedural grounds.

The EC rejected the Sprint-WorldCom proposal because of concern the combined company would dominate the Internet in Europe. U.S. officials had similar concerns, and the companies said they called off the deal because conditions demanded by the U.S. Justice Department would have “eliminated the customer benefits and financial synergies that supported the proposed merger.”

Material Errors

WorldCom said the EC made “several material errors” in its analysis of the effect of the planned merger on the Internet market. The commission, the company said, relied on market-share estimates for the combined company that “did not demonstrate market dominance.”

Moreover, according to WorldCom, the commission did not account for changes in the market over the past two years, such as the emergence of new companies and new technologies, that would keep any one competitor from exercising market power. WorldCom said the commission defined the relevant market “artificially” by considering company relationships alone rather than supply and demand.

WorldCom also called the decision “procedurally defective,” because the EC improperly calculated Sprint’s revenue, and because it issued the decision even after WorldCom and Sprint withdrew their merger plan.

Effect on Future Mergers

“While both WorldCom and Sprint have moved on to pursue separate strategies, it is important that the European Commission’s decision be reviewed and annulled, given its potential impact upon the development of dynamic European and global markets for telecommunications and Internet connectivity,” said Salsbury. “We firmly believe that the Court of First Instance will agree.”

Shares of both companies have fallen since the merger was called off. WorldCom closed Wednesday at 26 1/16, down from a 52-week high of 61 11/32. Sprint ended at 26 1/2, down from a high of 75 15/16.

Both WorldCom and Sprint provide long-distance, local and wireless telecommunications services, covering voice, data and Internet communications.

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