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MFS Communications Co. Buys UUNet Technologies For $2 Billion

Who Are These Companies?

MFS provides business customers with both intra-company telephone links and direct connections to the long-distance networks of AT&T, MCI, and others. UUNet provides Internet access services to business customers.

Where is The Additional Value Coming From?

With this acquisition, MFS is better positioned to attract business customers away from the regional Bell monopolies by offering attractive one-stop shopping for local, long-distance and Internet services. Moreover, MFS is probably also betting that it can add to UUNet’s current Internet customer base by attracting customers away from other Internet providers as well as establishing brand-name recognition so as to capture a share of the fast growing corporate Internet services market.

The added advantage of the Internet in long-distance communications, voice, data and video, is cost; it is a hundred times cheaper than telephone traffic.

Market’s Reaction

The bid price for UUNet was $57.78 a share. On the day of the announcement, the shares of UUNet shot up 22%, or $10, to close at $58.75. Shares of MFS were up a modest six cents to $35.69.

This suggests that the market, i.e. the average investor, believes that it is a good deal for both companies.

Industry Effects

Companies in the same industry tend to influence each other’s price movements. This phenomenon is generally referred to as "industry factors." The other factors that influence stock prices are, of course, (a) general movements in the overall stock "market" due to general economic conditions, and (b) unpredictable "firm specific" events.

Stocks of UUNet’s rival, PSINet Inc., soared 20% to $14.125; Netcom On-line Communication Services Inc. jumped to $38.875, or 10%. The "market" is suggesting that these companies are now prime targets for acquisitions.