The Federal Communications Commission normally would welcome a transaction of this kind, particularly in the post-9/11 world where having multiple telecom networks supports homeland security and economic objectives.
But Leucadia National Corp., the New York holding firm in the quiet hunt for newly re-listed MCI Inc., brings back bad memories for telecom regulators. A couple of NFL seasons ago, Luecadia caused a big commotion at the FCC by asking officials to bless a proposed $330 million buy of a 44-percent stake in WilTel Communications shortly before the deal was to close. WilTel’s fiber optic network carries sports programming.
With the approval, Leucadia, with a Renaissance-like collection of investments in everything from real estate to wineries to gold to health care, would be in the telecom business.
A fire drill of ignominious magnitude ensued. The FCC was not amused at having the Leucadia-WilTel matter dropped in its lap at the last minute. It put the agency in the position of considering an enforcement action that would have the unintended effect of disenfranchising countless sports fans dependent on WilTel for weekend TV pro football. Leucadia apparently got bad advice on how to do a telecom deal, believing they need not run it by the FCC.
Once Leucadia saw the light, the firm went into a mad scramble before hiring Mark Schneider, a communications lawyer at Sidley Austin. There’s no substitute for having a good Washington attorney. WilTel was granted special temporary authority to continue operations and NFL Sunday was saved.
Last year, Leucadia acquired the remaining common stock of WilTel for $423 million and paid $25 million for ATX Communications shortly before the competitive local exchange carrier filed for bankruptcy protection.
Not long after it squared away the little WilTel problem in fall 2002, Leucadia acquired 80 percent of WebLink Wireless, which was sold a year later to a much larger paging company.
You might wonder about a company that invests in dying long distance, paging and CLEC, but Leucadia was thinking a few steps ahead. That’s what its play for MCI may be all about.
Consider for a moment Leucadia’s thinking on WebLink. Leucadia knew full well cell phones had made paging largely obsolete.
“Roll-ups of the remaining paging companies seem the only path to survival,” Leucadia Chairman Ian Cumming and President Joseph Steinberg, said in a 2004 letter to shareholders. “The question was: Would we be `roll-upee’ or the `roll-uper?’ The answer follows. In the fourth quarter of 2003, WebLink sold substantially all of its … assets to a subsidiary of Metrocall Holdings Inc. for 500,000 shares of Metrocall common stock and warrants to purchase 125,000 shares of Metrocall common stock at $40 per share. We got rolled up!”
Sure enough, shares of Metrocall-seeking regulatory approval to merge with Arch Wireless-are going for about $67.
For more information on Leucadia, contact Joe Nacchio.
