The Action May Not Be Over At Metromedia...

Billionaire John Kluge may have made a triple play with his wholly owned Metromedia Co. On Sept. 14, shareholders of Resurgens Communications Group, an Atlanta-based provider of national long-distance telephone services, and LDDS Communications in Jackson, Miss., another telephone company, approved their merger into Kluge's company. But that's not the big story. A larger play by Kluge is already in the offing as a result of the deal.

Here's the scoop: Even before the merger was completed, several major telephone and media companies were talking behind the scenes with Kluge to acquire the new company, now the nation's fourth-largest telecommunications enterprise, with revenues of about $1.8 billion.

A New York investment manager who has been buying Resurgens shares believes the president and CEO of a major West Coast cable-TV giant will soon make a bid. Kluge owns 24% of LDDS Metromedia, the new company, and he controls more than 50% of the vote through other big stakeholders with whom he has had many business dealings. They include Resurgens Chairman Michael Marshall and President and CEO Jack Phillips, who each own more than 5%.

ALLTEL, a telecommunications company that Kluge has done business with, also holds a 24% stake. LDDS President Bernard Ebbers, who becomes the president and chief executive officer of the new company, owns an additional 5%.

LIVES FOR DEALS. Ebbers acknowledged at the Sept. 14 LDDS shareholders meeting that a deal may be in the works. Asked about buying into the cable business, Ebbers said that a "large cable operator may want to buy LDDS Metromedia, instead."

"I wouldn't be surprised if Kluge makes a deal to sell this new company," says Craig Ellis, an analyst at Wheat First Securities in Richmond, Va. "Kluge lives to do deals," he adds. "This three-way merger has created a new telecommunications giant with tremendous earnings potential."

Ellis sees the earnings of the new LDDS Metromedia rising to $1.70 a share this year and then jumping to $2.35 to $2.45 next year.

On Sept. 15, the first day of trading, LDDS Metromedia closed at 461 2 a share. Ellis puts the value of the company's underlying assets at $50 to $70. One big investor estimates that in a buyout, the new company should fetch a cool $72 a share.


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