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April 4, 1988

MCI PREPARES TO CUT EQUITY TIE, END IBM’s TELECOM DREAM

By CBR Staff Writer

The flurry strategic stakes in key companies taken by IBM in the early 1980s seemed to herald aggressive diversification into new activities – most notably telecommunications, where the company looked ready to go head-to-head with AT&T through eventual acquisition of MCI Communications Corp. But with the news late last week that MCI has set as a priority the repurchase of IBM’s 16% stake in itself, the chapter is coming to a close. IBM has sold out of Intel Corp, looks set to disengage from MCI, and is left with Rolm Corp, where a strategic stake was followed by acquisition. MCI says that for the first time in its 20-year history, it expects to see strong positive cash flow starting later this year or early next, and aims to reduce its debt-to equity ratio to 40% from the present 67%, and to buy back the IBM stake, over the next four years. IBM acquired its stake in MCI when it handed its Satellite Business Systems unit over to the company some three years ago: IBM and MCI collaborate on large scale systems implementation contracts involving computers and telecommun ications, and will likely continue to do so even when IBM is no longer a shareholder. There is a possibility that when the time comes, IBM will decide that it doesn’t want to sell, and try to get MCI to accept an IBM offer – but that’s unlikely.

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