EU To Block WorldCom/Sprint Merger

The $129 billion (US$) merger of WorldCom, Inc. (Nasdaq NM: WCOM) and Sprint Corp. (NYSE: FON) — which would form one of the largest corporate unions in history — will be blocked by European antitrust authorities, according to a published report.

The deal was nixed because it would create a dominant company capable of crushing Internet competition in Europe, according to Wednesday’s Washington Post.

“It’s over,” a senior official in the European Union’s Competition Directorate-General told the paper. “This deal is finished. Possibly, the parties will withdraw.”

WorldCom and Sprint officials declined to comment on the Post report.

Intolerable Obstacle

The proposed merger required European approval because of WorldCom’s extensive European holdings, but the deal has also raised concern in the United States, where it is currently under review by the U.S. Department of Justice (DOJ).

The U.S. Federal Communications Commission (FCC) has called the proposed merger an intolerable obstacle to competition and a review by a senior investigator resulted in a recommendation last month to DOJ antitrust chief Joel Klein that the deal be blocked. FCC chairman William Kennard criticized the merger the day it was announced.

The Post reported that European officials have informed their U.S. counterparts of their decision and that the Americans are in agreement. It is believed the DOJ may spare the European Commission the burden of blocking a merger of what are essentially U.S. companies by hastening its review of the deal and publicly announcing its opposition.

Collaborative Process

The European Commission launched a four-month investigation on February 21st and has until July 12th to either block the merger or clear it with conditions.

The Post reported that European Competition Commissioner Mario Monti’s staff has already drawn up an order blocking the merger and sent it to the various antitrust authorities of the countries making up the European Union. An advisory committee is scheduled to consider the draft Thursday and forward a recommendation to the commission.

The Post cited authorities who maintained the European review was a collaborative process with U.S. authorities and that the two sides were in almost daily contact.

WorldCom-MCI Example

WorldCom and Sprint tried to dispel European fears by offering to sell Sprint’s Internet business, but Monti rejected the offer. In a recent speech before the European Parliament, Monti recalled the WorldCom-MCI deal in explaining his objections to the plan.

Two years ago, the commission agreed to let WorldCom buy MCI on the condition the companies sell MCI’s Internet business. Britain’s Cable and Wireless bought the Internet business, but later charged MCI with sabotaging the deal by stealing customers and withholding account information, thereby stifling healthy competition.

Monti is scheduled to meet in Washington on Thursday with the DOJs Klein, Federal Trade Commission chairman Robert Pitofsky and Attorney General Janet Reno. He is scheduled to meet with the FCCs Kennard on Monday.