MCI Changes Partners in Merger Dance With Verizon

April 24, 2005|James S. Granelli | Times Staff Writer

Long-distance phone company MCI Inc. bowed Saturday to a better offer from Qwest Communications International Inc., saying the $9.75-billion bid was superior to the pending deal MCI had with Verizon Communications Inc.

Verizon has until late Friday to revise its $7.5-billion agreement or walk away with a $240-million fee that MCI would have to pay to break the deal.

Since February, MCI's board has rebuffed Qwest's efforts three times in favor of Verizon's lower offers. Qwest is the smallest and financially weakest of the nation's four regional telephone network owners. Verizon is the nation's strongest and largest phone company.

On Saturday, however, MCI said it could no longer ignore the higher offer from Qwest, whose headquarters are in Denver.

A spokesman for MCI, based in Ashburn, Va., would not elaborate on the company's brief statement that the board had found that Qwest's latest offer was "superior to the terms of the current MCI/Verizon merger agreement."

On Thursday, Qwest increased its bid to $30 a share, up from $27.50. Verizon has agreed to pay $23.10 a share.

Qwest said it was gratified that MCI recognized its bid as superior. But the company also was wary.

"We expect MCI to build upon its declaration of superiority with specific acts of support, including expeditiously seeking regulatory approvals," Qwest said in a statement.

Verizon, based in New York, said in a statement that it would consider its options. But it questioned whether Qwest's latest offer was "sufficient compensation for the increased risks associated with completing the transaction and executing a business plan thereafter."

The MCI board action is a new twist in the long-running fight. The battle erupted after regional carrier SBC Communications Inc. agreed in January to acquire AT&T Corp., the nation's largest long-distance carrier, for $16 billion.

"This has got to be one of the most interesting if not the strangest merger dances we've seen in a long time," independent industry analyst Jeffrey Kagan of Atlanta said.

"MCI has done a great job of letting the combatants build the price, but I don't see it going much higher if at all," Kagan said.

Should Verizon ultimately win, the combination would create a global goliath on a par with SBC-AT&T. Should Qwest win, there would be three major competitors -- the combined Qwest-MCI, Verizon and SBC-AT&T.

Qwest's struggle has been to convince MCI directors that its bids are superior to the deal that MCI already reached with Verizon.

Verizon, with its local network, Verizon Wireless unit and high-speed Internet service, has been seen as a much stronger company financially -- as well as a better fit for MCI's national and global network, and big business and government customers.

Qwest's latest bid is $3.3 billion more than the company's overall market value, but it already has $7.25 billion in financing committed to a deal.

Though it doesn't own a wireless unit, Qwest has a more modern long-distance network and contends it can better manage a hodgepodge of MCI networks to squeeze nearly twice the savings out of a merger than Verizon could.

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