Qwest makes revised bid for MCI

Qwest Communications International Inc., in its effort to lure MCI Inc. away from rival Verizon Communications Inc., on Thursday made a new bid for MCI that guarantees the price it will pay to MCI stockholders.

Qwest’s new offer would continue to pay US$24.60 per share in cash and stock to MCI stockholders, in a deal worth about $8 billion, the same price Qwest offered on Feb. 11. However, the new Qwest bid would guarantee that purchase price, unlike a rival bid from Verizon, and it would allow a faster payout to MCI stockholders than Qwest’s previous bid.

MCI executives on Feb. 14 accepted a deal from Verizon worth about $6.7 billion, arguing that the larger and more profitable Verizon would be the best long-term fit for MCI. Stockholders would still have to approve that deal.

Qwest’s new letter to the MCI board guaranteed the $24.60 as a locked-in price, called a “collar,” for MCI stockholders, instead of a bid based on the fluctuating value of Qwest’s stock. Qwest’s offer of $15.50 worth of its stock has not changed, but its new bid would give MCI stockholders $6 in cash per share at approval of the agreement and $3.10 at closing, instead of the $1.60 at approval and $7.50 at closing.

Qwest’s Chairman and Chief Executive Officer, Richard Notebaert, called the new proposal “even more compelling for your stockholders,” in the letter to MCI’s board.

MCI issued a short statement Thursday: “MCI’s Board will conduct a thorough review of the Qwest offer, as it has with all previous offers.”

Qwest and Verizon are locked in a battle for MCI after rival regional Bell company SBC Communications Inc. announced Jan. 31 it plans to acquire AT&T Corp. in a $16 billion deal. MCI and AT&T have both focused on enterprise customers, long-distance service and international data networks, while Qwest, Verizon and SBC have traditionally provided local phone service.

Verizon issued a statement Thursday. “Verizon has a signed agreement with MCI and a proven track record of completing transactions that create value for shareholders, customers and employees,” it said.

Notebaert, in his letter to the MCI board, argued that a Qwest/MCI merger would yield better cost savings than a Verizon-MCI merger, and because Qwest and MCI have fewer overlapping services, a merger between the two would face a simpler regulatory review than a Verizon acquisition of MCI.

“It is important to emphasize that a Qwest/MCI merger would create an exciting and important new telecommunications company, of which MCI would become a meaningful part,” Notebaert wrote. “The combination would create the industry leader in IP (Internet Protocol), with the most advanced IP-based network and compelling suite of IP-based services. We believe that it was these prospects that caused MCI to discuss a proposed combination with Qwest continuously over the last ten months.”

The new Qwest offer wasn’t needed, but it could make MCI executives feel better about the merger, said Jeff Kagan, an independent telecom analyst.

“It is very surprising that MCI acted so quickly accepting Verizon’s bid,” Kagan wrote in an e-mail message. “I think most of us expected both Verizon and Qwest to fight for MCI over days or weeks and maybe even drive the price up. With Verizon and Qwest both wanting MCI, there is obviously a lot more value to squeeze out of this deal. The process doesn’t need to take a long time, but MCI needs to talk with Qwest as well as Verizon and hammer out the best deal.”

But MCI should look at the competitive potential of the company after the merger, as well as the offer itself, Kagan added.

“I think both the Verizon and Qwest bid make sense for MCI,” he wrote. “They will turn MCI into two very different companies, but there are no rights and wrongs. It’s good for the whole process that MCI has agreed to consider the Qwest offer again. Once the deal with either company is struck, there won’t be any unanswered questions.”

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