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Verizon Agrees to Buy Stake Of MCI's Biggest Shareholder

$1.1 Billion Purchase an Attempt to Shut Out Qwest's Bids

By Yuki Noguchi
Washington Post Staff Writer
Sunday, April 10, 2005; Page A12

Verizon Communications Inc. said yesterday it agreed to pay $1.1 billion in cash to purchase the shares of MCI Inc.'s largest shareholder in an attempt to lock up its deal to buy MCI and shut out rival Qwest Communications International Inc.

New York-based Verizon agreed to buy about 43.5 million shares -- or 13 percent of MCI's stock -- from Mexican telecom magnate Carlos Slim Helu. At $25.72 a share, MCI's market price at the time of the agreement, the price is higher than the $23.10 per share Verizon has offered to pay other MCI shareholders to acquire the company.

Carlos Slim Helu agreed to sell his 43.5 million shares of MCI stock.

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Qwest's MCI Bid Born of Need to Expand Its Base (The Washington Post, Apr 8, 2005)
Some Shareholders Criticize MCI Decision (The Washington Post, Apr 7, 2005)
MCI Again Rejects Qwest Merger Offer (The Washington Post, Apr 6, 2005)
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It's the latest chess move between Verizon and Qwest, two regional phone companies locked in a two-month battle to acquire MCI of Ashburn. So far, MCI's board of directors has sided with Verizon, citing that company's greater resources and financial strength, even though Qwest is offering to pay substantially more.

Analysts described Verizon's move as a significant development, but some said Qwest could still muster support for its offer.

Qwest has sweetened its bid three times in its attempts to win the support of the MCI board, forcing Verizon to raise its original offer, but the MCI board spurned Qwest each time. For the past week, Qwest has been considering ways to pursue a hostile offer, including seeking the backing of MCI shareowners to vote down the proposed merger with Verizon.

In buying Slim's shares, Verizon sought to reduce Qwest's maneuvering room. The deal "was an opportunity for us to purchase a block of shares under unique circumstances and is an important step forward in our acquisition of MCI," Verizon chairman and chief executive Ivan Seidenberg said yesterday in a statement. The purchase of Slim's shares, which must be approved by regulators, is expected to close in several weeks, the company said.

Verizon will not be able to acquire more shares one block at a time from MCI investors because of a "poison pill" provision in MCI's charter that makes it prohibitively expensive for a single entity to accumulate more than 15 percent of the company's shares.

Verizon's deal with Slim came after Denver-based Qwest said a survey it commissioned showed that a majority of MCI shareholders supported Qwest's most recent offer. The company declined to disclose details of that survey but said Slim was not among the investors it had been counting on to support the Qwest offer of $27.50 a share, or a total of $8.9 billion, in cash and stock. Verizon's offer totals $7.65 billion in cash and stock.

"I don't think it's over for Qwest at all," said Martin Hyman, an independent telecommunications consultant. "It was a very clever move on Verizon's part. Obviously, it gives Verizon additional support, but this is a very, very critical acquisition from [Qwest's] standpoint." The company needs MCI's corporate customer base and its cash, he said. "It's do or die."

Striking a deal with a single shareholder may create pressure for Verizon to increase its bid to the rest of MCI's shareholders, many of whom have spoken in favor of Qwest's offer or have demanded that MCI seek a better deal from Verizon.

"Verizon has basically told the world what they think MCI shares are worth, and what they've said is that they're worth more than $23.10," said Patrick Comack, an analyst with Zachary Investment Research in Miami. If Verizon offers what it's paying to Slim to the rest of MCI's shareholders, that could put MCI out of Qwest's reach, Comack said. "I think today's move may make Qwest say, 'Uncle.' "

Calls and e-mails requesting a comment from Slim were not returned yesterday, although his office released a statement confirming the deal.

In a statement responding to Verizon's latest move, Qwest said Verizon was trying to drive a wedge between shareholders.

"By entering into this deal with Mr. Slim, Verizon has both created two classes of shareholders and called into question the MCI board's previous determination that Verizon's lower offer to the other MCI shareholders was superior and fair," the statement said.

Qwest spokesman Tyler Gronbach said the company previously had its own negotiations with Slim. Gronbach said Qwest is considering all of its options, including a higher bid for MCI.

Verizon spokesman Peter Thonis declined to comment, as did MCI spokesman Peter Lucht.

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