May 17, 2000 5:30 PM PDT

Analyst predicts DOJ will spike MCI-Sprint merger

A financial analyst's report today cast new shadows on the pending merger between Sprint and MCI WorldCom, saying that the Department of Justice is "preparing a strong antitrust court case" against the deal.

Legg Mason Precursor Group analyst Scott Cleland said today that he expects investigators hired to review the company's merger will make their recommendation to DOJ antitrust chief Joel Klein within the "next several weeks."

"There's a whole lot that's going on behind the scenes that indicates the merger is in deep trouble," Cleland said.

The Department of Justice could not be immediately reached for comment.

The market didn't blink at the news, sending MCI WorldCom down just a point. Sprint was down just 18 cents at the market's close.

MCI WorldCom declined to comment on Cleland's report.

This is the second time that the Precursor Group has leveled sharply pessimistic predictions at the merger. Last time around, the market dropped on the news.

But several analysts from competing firms weighed in immediately afterward, saying that they believed the merger was still on track. Other analysts have recently said the merger would likely be approved if MCI WorldCom agreed to sell off much of its Internet backbone business.

In today's report, Cleland predicted that the Department of Justice would be particularly concerned about concentration in the long-distance market, despite the recent entry of scores of competitors such as Qwest, Williams and smaller resellers.

The vast majority of customers who leave AT&T bounce back and forth between Sprint and MCI WorldCom, and other players have had a hard time reaching anywhere near their market share. This would be the "lead" legal argument in a DOJ case against the merger, the analyst said.

"I'm confident of the outcome," Cleland said. "I'm not as confident of the timing. The timing is always the most difficult thing to predict."


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