DIAL M FOR MERGER

By John Greenwald

Now maybe MCI chairman Bert Roberts Jr. knows how the rest of us feel about those annoying telemarketing pitches. Last week his phone rang and the caller was Charles Lee, chairman of GTE Corp. I'll give you $28 billion in cash for the company, Lee told Roberts. Two weeks earlier it was Bernard Ebbers, the folksy CEO of WorldCom. Hey, Bert, how's about $30 billion in stock for MCI? Ebbers asked.

Who knows what the next call could be worth? The phone lines are burning up in what is becoming the biggest takeover brawl in American corporate history. The courtly Lee is now on a collision course with cowboy-booted Ebbers, who had already busted up the long-planned buyout of MCI by British Telecommunications.

Not since the $25 billion battle for RJR Nabisco a decade ago has a takeover fight so electrified Wall Street. Giddy investors savored the prospect of soaring bids. Legions of investment bankers are bellying up for the tens of millions of dollars in fees that will become available. "It's going to be fun," says Frank Plumley, a telecommunications analyst for Standard & Poor's. "There's a follow-the-leader effect, and right now mergers and acquisitions are the hottest thing in the world."

Yet the latest outbreak of merger mania is a far cry from the junk-bond-fueled frenzy of the 1980s, when rival dealmakers fought to buy, dismantle and sell off big chunks of target companies. Today's telecom bidders want to build empires that can provide everything from local calls to long distance to Internet access for customers around the world.

This is one of those great turning points in business history: telecom companies fear being left behind at a time when data and Internet traffic has begun to surpass the volume of voice calls. Data traffic is expanding at a rate no one predicted just a few years ago. How fast? E-mail, video and other data could account for 99% of all telecommunications traffic by 2004. "You can't imagine an industry with more uncertainty than telecommunications today," says Robert Crandall, a Brookings Institution observer of the telecom turmoil. "A lot of people are betting huge amounts and rolling the dice."

A winning play for MCI would make either GTE (1996 revenues: $21.3 billion) or WorldCom ($4.5 billion) the prime challenger to AT&T ($52.2 billion). That would be particularly sweet for Lee, whose 79-year-old company has been regarded as a takeover target and a poor cousin of the old Ma Bell. Cobbled together from AT&T leavings, GTE now has more than 20 million local customers in 29 states. And because it never was part of the Ma Bell system, GTE is largely unhindered by regulations that continue to block the Baby Bells' entry into long distance. Lee has seized that advantage to sign up more than 1 million long-distance customers in the past year, most of them snatched from AT&T.

Lee is betting that MCI shareholders will find his all-cash bid more attractive than Ebbers' higher but riskier offer of stock. Most find cash more fetching. The strategy will force Lee to borrow to the teeth to finance the MCI buyout. The resulting company would have $40 billion in revenues and an unbelievable $54 billion in debt. Lee tried to assure investors that the combined companies would throw off enough cash to cover the interest payments. But the mere thought of that debt burden helped knock nearly $4 off the price of GTE stock last week. GTE finished trading at $46.06 a share.

Lee was careful to keep a line open to BT, which Ebbers had derided as a vanquished foe three weeks ago. Lee has talked over the years with BT chairman Sir Iain Vallance and MCI's Roberts about a possible combination of the three telecom giants. Lee stressed last week that he would welcome BT, which has held a 20% stake in MCI since 1993, in a combined GTE and MCI. "We share the global vision of our industry that brought MCI and British Telecom together," Lee noted in a "Dear Bert" letter to Roberts.

Indeed, this battle could be influenced as much by the personal styles of the ceos as by the strength of their bids. Vallance, although he flat-out bungled his MCI bid, could use his 20% stake to provide the swing vote in a showdown. He seems more disposed to side with Lee than with Ebbers, who shattered BT's dream of acquiring all of MCI. Lee and Roberts, both engineers, have a common bond, while the defiantly nontechnical Ebbers is a wildcatter who built WorldCom into the fourth largest U.S. long-distance company through a relentless series of deals. "Bernie Ebbers wasn't our type," sniffs an MCI insider who was glad to get the GTE bid.

But Ebbers, a former basketball coach, is a gamer who relishes a battle. And he's playing with WorldCom's high-powered stock. Ebbers can easily issue the 820 million new shares needed to acquire MCI in a tax-free deal. Both combinations are sure to raise red flags at the Justice Department and the fcc. The GTE takeover in particular would raise "serious competitive questions," warns FCC chairman Reed Hundt.

Yet such concerns scarcely dim the newfound luster of MCI as America's most wanted company. MCI stock, which traded for less than $28 a share last month, closed at $37.75 last week. "They [MCI] are in a really enviable position," says Jeffrey Kagan of Kagan Telecom Associates in Atlanta. "They can pick and choose their future and the company that will get them there." And the battle for that future--as well as for the rest of the telecom industry--may just be starting.

--Reported by Bruce van Voorst/Washington

With reporting by Bruce van Voorst/Washington