Magazine article American Banker

Experts See Banks Gaining from IBM-MCI Pact

Magazine article American Banker

Experts See Banks Gaining from IBM-MCI Pact

Article excerpt

NEW YORK -- Banks stand to gain from the deal between International Business Machines Corp. and MCI Communications Corp., in the view of bankers and telecommunications specialists.

IBM and MCI announced an agreement in principle for MCI to acquire most of the assets and operations of IBM's affiliated Satellite Business Systems and for IBM to acquire a major stake in MCI in exchange.

The pact, which still faces regulatory hurdles, signals an alliance between the biggest vendor of computer systems to the banking industry and the second biggest long-tdistance telephone service provider after American Telephone & Telegraph Co. It puts IBM and MCI both in better positions to compete for the business of transmitting data among computer networks.

"There's more of a choice," said John R. Bienkowski, president of BM&T Consultants, Morristown, N.J. "AT&T provides a good service. But choice and competition in the market is good ford banks."

"We might be reluctant to go all the way with an MCI, but with an IBM we have less anxiety," said one banker who asked not to be identified.

"We're very positive about it," said William J. Coplin, senior vice president of Security Pacific Data Transmission Corp. "A lot of questions are created, obviously. The largest single question is will Bill McGowan continue to be the entrepreneur and leader that he has been the past few years? Or will he color MCI blue?"

William G. McGowan, the MCI chairman, said in the announcement that MCI's acquisition of Satellite Business Systems, or SBS, would add more than 200,000 customers to the more than 2.5 million business and residential long-distance phone subscribers already served by MCI.

SBS is the satellite telecommunications joint venture of IBM and Aetna Life & Casualty. IBM would buy Aetna's 41% interest in SBS and retain three SBS satellites designated SBS-4, SBS-5, and SBS-6, along with RealCom, an SBS subsidiary.

In exchange, MCI would issue 45 million MCI common shares to IBM and warrants to buy another seven million shares at $15 each. IBM will hold the shares for a minimum three years.

The 45 million shares would give IBM a 16% stake in MCI. If all warrants are exercised, the stake would increase to 8%. The agreement calls for IBM to make further cash investments in MCI, up to a 30% interest, without MCI approval.

The Federal Communications Commission must approve the merger of MCI and SBS, and the Justice Department must review it under the antitrust provisions of the Hart-Scott-Rodino Act.

"The combined companies [MCI and SBS] would have the largest digital communications network in the world, comprising MCI's optical fiber and digital microwave systems, and SBS' digital satellite capacity," Mr. McGowan said.

Filling a Void

Telecommunications once was voice only, but today an increasing segment is the transfer of huge amounts of data among computers in the U.S. and abroad. Competition for that business has become especially intense since AT&T was forced to divest its telephone operating companies.

"What IBM is doing is filling the biggest void in its service to its data customers," Mr. Bienkowski said.

"Wit SBS, it had just a satellite service. …

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