Worldcom, the No 2 US long-distance company, said in a statement it will hand over stock worth about US$165 million to Digex investors and their lawyers, and pay the company US$15 million in cash. WorldCom also agreed to use Digex Web-hosting and other services, and cover some expenses in concessions worth as much as US$250 million, people familiar with the agreement said.
The settlement clears the way for Clinton, Mississippi-based WorldCom's US$4.2 billion acquisition of Tampa-based Intermedia, which owns a 55 percent stake and a 94 percent voting interest in Digex. WorldCom officials said they expected the purchase to close by the end June.
"We're pleased to put this matter to rest," Bernard Ebbers, Worldcom's president and chief executive, said in the release. Intermedia and Digex officials weren't immediately available for comment on the settlement.
Digex stockholders sued in Delaware Chancery Court in September to stop the acquisition, contending they weren't getting fair value for their shares in the buyout. The Beltsville, Maryland-based company manages Web sites for companies such as Sony and Ford Motor Co.
In the settlement, Intermedia executives agreed to accept one share of WorldCom stock for each of their company's shares. That would value Intermedia shares at US$16.18 each, or US$885.4 million, at today's closing price. It also agreed to assume about US$3 billion in debt as part of the Intermedia acquisition.
Original offer
WorldCom's original offer was 1.2 of its shares for each of Intermedia's. Cutting its Intermedia offer allowed WorldCom to shift US$140 million in stock to Digex shareholders, people familiar with the agreement say. The settlement also calls for Digex's lawyers to get US$25 million in stock for their legal fees.
Investors who held Digex shares on September 1, the day Worldcom's Intermedia offer was announced, will split US$70 million, while holders of Digex's shares on the closing date of the acquisition will divide the other US$70 million, people familiar with the agreement said.
The settlement also calls for WorldCom to buy more than US$500 million in web-hosting services from Digex over a three-year period starting this year, the people said. WorldCom also agreed to arrange US$900 million in loans to Digex to help it carry out its business plans over the next two years, according to the people familiar with the settlement.
Investment bankers reviewing WorldCom's business agreements with Digex under the accord pegged the value to Digex shareholders between US$200 million and US$250 million.
Predictions
Analysts had predicted WorldCom and Digex shareholders would settle their legal fight over the Intermedia acquisition even though Delaware Chancery Court judge William B Chandler III December 13 turned down Digex investors' bid to block it.
In reviewing the case, Chandler noted that Intermedia executives serving on Digex's board may have violated their legal duties to Digex shareholders by waiving antitakeover defenses to smooth the path for WorldCom's bid.
Chandler said that Digex shareholders may be entitled to "monetary remedies" for the actions of Intermedia executives. Digex lawyers argued in court that those damages could amount to US$2.5 billion -- the difference in value between Digex's share price and other offers for the Web-hosting company.
Chandler still must approve the settlement at a hearing that will be scheduled. In September, Exodus Communications Inc. offered Intermedia officials stock valued at $120 per share for the Digex unit. Intermedia's board chose to accept WorldCom's offer of stock, which valued the company's shares at US$39 each.
Digex's shares have plummeted 58 percent since then, falling from US$60.43 on September 15 to US$25.38 Thursday on the Nasdaq Stock Exchange. Intermedia's shares, which have fallen 47 percent in the same period, rose US$1.19 to US$15.31 on the same exchange.
WorldCom's shares, which have fallen 45 percent since it made the offer for Intermedia, fell US$1.83 to US$16.19 on the Nasdaq Exchange before the settlement was announced.
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