Telecom Is Getting Another Behemoth

Some in Congress said they would give the combination a close look. Sens. Mike DeWine (R-Ohio), chairman of the Judiciary subcommittee on antitrust, competition policy and consumer rights, and Herb Kohl (D-Wis.), the subcommittee's ranking Democrat, issued a statement vowing to scrutinize the deal, saying it raises "troubling questions about competition and the availability of consumer choice."

The two companies said the acquisition should help shore up MCI's eroding sales and give New York-based Verizon, the nation's largest phone company, a roster of lucrative business and government customers along with an extensive Internet and long-distance network that spans all 50 U.S. states and six continents.

The proposed combination is estimated to save $1 billion a year in costs as Verizon moves to consolidate MCI's disparate operations and cut 7,000 jobs from a merged workforce of about 250,000. The companies declined to say how many of the Washington region's 3,500 jobs would be affected but said many of the reductions would come in engineering, legal, network operations, human resources and sales administration positions. MCI once employed 10,000 people in the area.

The companies said they were still working on the new management and board structure.

Denver-based Qwest Communications International Inc., another bidder for MCI, had increased its stock-and-cash offer to $7.3 billion late Friday. Verizon's bid was lower but was a better long-term value for MCI shareholders because Verizon is more financially stable, argued Ivan Seidenberg, Verizon's chairman and chief executive. He said Verizon is also a better strategic fit.

Any suitor that tries to swoop in now would have to pay a $200 million breakup fee called for in the Verizon-MCI agreement.

Some shareholders were hoping for better. The deal values MCI at $20.75 a share. MCI shares closed yesterday at $19.93, down 82 cents, or 4 percent. Verizon shares also fell, down 12 cents to $36.19.

"In our view, MCI is worth more than Verizon is paying," said Leon Cooperman, whose hedge fund, Omega Advisors, owns about 3 percent of MCI's shares. "I think MCI is capable of surviving as a stand-alone business. We don't have to do a deal."

Others, however, said a sale was inevitable for MCI, which in the past three years has struggled through a huge accounting scandal, a subsequent bankruptcy and the steady erosion of its once-robust long-distance and consumer business. The company said it expects its fourth-quarter revenue to drop 10 percent from 2003. MCI, like AT&T, is still best known as a consumer long-distance brand, but last year it pulled back from the retail phone business to focus on trying to retain its phone and Internet contracts with large corporate customers. It still has 10 million residential customers.

Discussions between the two companies started last summer. Verizon said it proceeded cautiously, in part because MCI is still dealing with fallout from its accounting fraud.

MCI's former chief executive, Bernard J. Ebbers, 63, is on trial, charged with securities fraud and conspiracy to inflate financial results of WorldCom Inc., MCI's former parent, which took the MCI name when it emerged from bankruptcy protection. He denies his involvement in the accounting problems and blames the fraud on his underlings. If charges associated with the fraud and bankruptcy exceed $1.75 billion, the purchase price of MCI will go down.

"They've been through a hard couple of years. We wanted to them to have their arms around the whole bankruptcy process" before any deal could be struck, Seidenberg said in an interview.

Staff writer Ben White in New York contributed to this report.