MCI Inc.'s board of directors yesterday embraced a cash-rich offer from Qwest Communications International Inc. after months of saying the company was a financially weaker and strategically less desirable merger partner than Verizon Communications Inc.
The sweetened $9.74 billion deal, if completed, could set the stage for dramatic changes at Ashburn-based MCI, the first major telecommunications company to grow up in the Washington area. Qwest has said it would cut as many as 15,000 jobs and eliminate nearly $15 billion in costs from a combined company.
By comparison, the larger Verizon said it would cut about 7,000 jobs. About 4,000 of MCI's 41,000 employees are based in the Washington area.
In declaring Qwest's latest proposal "superior" to Verizon's current offer, the MCI board has not ended the process. Verizon has through Friday to up its ante, which sources familiar with the negotiations said is likely. Verizon's current bid for MCI is about $2 billion less than Qwest's.
Verizon officials said in a statement that they would consider all of their options in coming days. They maintained, as they have throughout the discussions, that merging with their company, even at a lower price, would better guard "the integrity of MCI's business, ensuring that MCI's customers have continuing access to the best communications services, retaining key employees, and stabilizing MCI's financial position and prospects."
The 10-week battle for control of MCI is one of a series of telecommunications deals that has started realigning the industry in favor of its bigger players. Companies that once specialized in selling local and long-distance phone service are banding together to better compete, as cellular and Internet-based technologies allow consumers to replace traditional carriers. Over time, analysts said, phone companies will need heft and scope to offer broader packages of goods and to effectively challenge the cable companies and others entering the phone business.
In January, MCI's biggest direct competitor, AT&T Corp., agreed to be sold to SBC Communications Inc. for $16 billion. Late last year, Sprint Corp. and Nextel Communications Inc. announced plans to merge for $35 billion.
MCI's desirability as a merger partner was in question only a few months ago. Under its previous name, WorldCom Inc., it weathered an $11 billion accounting scandal, two years in Chapter 11 bankruptcy reorganization, adverse regulatory changes and an implosion in the technology market that pared its business to nearly half of what it was at its height in 2000. MCI's consumer long-distance business continues to decline, but it retains a valuable corporate and government client base that has helped make it attractive to Verizon and Qwest.
In mid-February, MCI agreed to merge with Verizon, which is offering $7.65 billion in stock and cash for the company, or about $23.10 per share. That agreement stands until Verizon increases its bid or until MCI's board finalizes the offer from Qwest.
A source familiar with Verizon's strategy said a new bid could reach $25.72 a share, which is the same amount Verizon offered last week to Mexican telecom magnate Carlos Slim Helu to acquire his 13.4 percent stake in MCI. Although Qwest characterized its most recent price as a "best and final offer," telecom analysts said that acquiring MCI is vital if the Denver company is to expand beyond its Western regional market and compete with giants such as Verizon.