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MCI Appears to Take Verizon's Call

Directors of the long-distance firm accept a bid worth about $6.7 billion, sources say. A richer offer from Qwest was rejected.

February 14, 2005|James S. Granelli | Times Staff Writer

Directors of MCI Inc. agreed late Sunday to sell the long-distance carrier to Verizon Communications Inc. for about $6.7 billion in cash and stock, people close to the deal said.

The decision to hitch up with the nation's largest telephone company further transforms the U.S. telecommunications industry into one dominated by a few national behemoths that serve international corporations as well as households.

Only two weeks ago, AT&T Corp., the nation's largest long-distance company, agreed to a $16-billion acquisition by SBC Communications Inc., the second-largest local phone company.

In voting for Verizon, MCI spurned a richer bid by Qwest Communications International Inc., which had sweetened its original offer over the weekend by about $1 billion to $7.3 billion.

The action may draw complaints from MCI shareholders, most of whom bought into the company after it emerged from bankruptcy. It was called WorldCom Inc. when an $11-billion accounting fraud crippled the company in 2002.

"The board considered this to be the best offer from a long-term perspective," one person familiar with the transaction said. "It's a strategic fit, a fair price and best for the company."

The price was believed to be between $6.6 billion and $6.8 billion. That's an increase from the $6.3 billion Verizon offered last week to match an earlier bid from Qwest.

Details of the merger and the late-night teleconference among directors are expected to be released officially today.


Although Qwest's offer was higher, the company is weaker financially than Verizon and doesn't offer as many advantages, making the decision complicated for MCI directors.

"This becomes a corporate governance issue," one source said.

Directors must consider what's best for the company, but "they have a fiduciary duty to go with the higher price unless they can show good justification for taking the lower one."

The long-distance companies, effectively removed by federal regulators last summer from offering local service, have been winding down residential operations, relying instead on the highly competitive corporate market, where AT&T is the leader.

MCI, formed in 1968, was the first to compete with AT&T. WorldCom Inc., a fast-growing long-distance company, acquired MCI in 1997, but the high-flying operation spun out of control, crashing into bankruptcy in 2002 in an $11-billion accounting scandal.

It emerged from in April as MCI, a much smaller company but still second to AT&T in the corporate market.

Denver-based Qwest provides local and long-distance service to 14 Western states. With $16.5 billion in long-term debt, it lost $1.7 billion in the first nine months of last year.

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