MCI Inc.'s board of directors late last night rejected Qwest Communications International Inc.'s $8.9 billion offer, spurning the company's bid for a third time in favor of Verizon Communications Inc.
Qwest, based in Denver, said it would weigh its options. "MCI's shareowners will dictate the next steps in the process," said Claire Mylott, a spokeswoman for Qwest. "We are confident that our offer is superior, and statements from MCI shareholders indicate that they are in agreement with us."
MCI's board of directors met yesterday to discuss Qwest's latest offer.
(Matthew Staver -- Bloomberg News)
Privately, a source at Qwest has said that the company has also been considering a hostile takeover.
Qwest chief executive Richard C. Notebaert had warned in a letter yesterday that Qwest would withdraw its proposal if MCI did not accept the offer by midnight and make its intentions known publicly by noon today.
Officials from Verizon last month signed an agreement to acquire MCI after raising its initial bid to $7.65 billion. Verizon's bid totaled $23.10 a share in cash and stock, compared with Qwest's most recent offer of $27.50 a share in cash and stock.
The nearly two-month-old bidding war to acquire MCI heated up anew earlier this week. The fight has been intense because MCI is one of the last major telecommunications companies up for sale. The Ashburn company's board rejected Qwest's two previous offers, citing Verizon's greater financial strength and its broader portfolio of businesses to complement MCI's.
In a letter dated Monday, Verizon chief executive Ivan Seidenberg had expressed frustration at Qwest's repeated attempts to pressure MCI's board into making a decision.
"[T]hey should not be permitted to stampede the Board into a rushed decision that has no meaning in the context of the thorough and disciplined process it has pursued," Seidenberg wrote. He also said Qwest was pursuing MCI "to raid its balance sheet and use it as a financial life boat."
For his part, Notebaert stepped up Qwest's accusations yesterday that the MCI board is not acting in accordance with proper corporate governance rules.
"MCI asked for a number of provisions and changes" over the weekend, Notebaert wrote in the letter yesterday. "As we have informed MCI, many of these changes are unacceptable."
Among the changes, Notebaert wrote, MCI asked to be relieved of its obligations to comply with a provision of the Sarbanes-Oxley corporate governance law dealing with management's assessment of internal controls. MCI also sought to "significantly increase the amount of MCI executive retention packages," he wrote.
A source at Qwest said MCI's advisers asked for a "multimillion-dollar" retention package. The source, speaking on condition of anonymity because of the fluidity of the situation, had said if MCI declines its offer, Qwest may consider a hostile takeover of MCI, going directly to shareholders and trying to replace MCI's board.
Some shareholders have said they back Qwest's latest offer, citing its higher price. Legg Mason Capital Management chief executive Bill Miller sent a letter yesterday to MCI Chairman Nicholas deB. Katzenbach urging MCI board members to accept the Qwest bid. "We believe that the current Qwest offer . . . is clearly and significantly superior to Verizon's most recent offer," wrote Miller, whose Baltimore investment firm owns 5.6 million MCI shares.
MCI denied Notebaert's claim that MCI was trying to evade federal corporate-governance rules. And a company spokesman said any negotiated retention package would extend to a broad base of employees and not to its chief executive, Michael D. Capellas.
"Qwest's claim regarding MCI's Sarbanes-Oxley compliance is a total misrepresentation," said Peter Lucht, a spokesman for MCI. "We are Sarbanes-Oxley compliant, so it is a non-issue with regard to any proposed transaction."