Qwest Communications International Inc. yesterday revised its bid for MCI Inc. in an effort to stop the Ashburn-based telecommunication company's plan to be bought by Verizon Communications Inc.
Qwest's action could launch a full-fledged bidding war for MCI, whose board accepted a $6.75 billion cash-and-stock offer from Verizon and rejected an $8 billion bid by Qwest. The decision prompted some shareholders to sue and others to demand reconsideration of the deal.
Qwest CEO Richard C. Notebaert calls new offer "more compelling."
(AP)
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In its revised deal, Qwest did not change the price but proposed paying some of the cash to MCI shareholders sooner.
In a letter to MCI Chairman Nicholas deB. Katzenbach that detailed the revised offer, Qwest chief executive Richard C. Notebaert said, "Despite being denied access to MCI legal, financial and operational information . . . Qwest tenders this revised proposal, the terms of which are even more compelling to your stockholders."
MCI issued a one-sentence statement promising its board "will conduct a thorough review of the Qwest offer, as it has with all previous offers." MCI executives have argued the Verizon proposal was better because of Verizon's stronger finances and the company's broader reach.
Eric Rabe, a Verizon spokesman, declined to say whether the company would counter Qwest's offer, but he rejected assertions that Qwest's deal would be better for MCI shareowners. "Verizon has a proven track record of completing transactions that create value for shareowners, customers, and employees," Rabe said. An executive close to the deal, who spoke on condition of anonymity because the deliberations are confidential, said Verizon would wait until MCI's board reviews Qwest's letter before making a decision on whether to modify its bid.
If a real bidding war breaks out for MCI, the fight could turn nasty, said Charles R. Geisst, a Manhattan College professor and Wall Street historian. "There is no protocol, no etiquette. It's just bid, counter-bid, put ads in newspapers, do whatever it takes to influence shareholders," he said.
David Ahl, a telecommunications analyst who is advising several large MCI shareholders, said Verizon may have to increase its bid. If Qwest's latest offer is rejected, Ahl predicted the company will probably make a hostile tender offer directly to MCI shareholders. "But first they are trying to do it the nice way," he said.
Other analysts said Verizon can win without major changes in its offer.
"I don't think Verizon is quaking in its boots," said Scott C. Cleland, chief executive of research firm Precursor Group Inc. "They already won the bidding war, and this new offer isn't much different from the offer MCI already rejected."
"Verizon is a much more financially stable company," said F. Drake Johnstone, an analyst with Davenport & Co. Qwest has $17 billion in debt. Verizon also has a strong presence in heavily trafficked business areas such as New York and Washington, where MCI has many of its business customers, so the combination makes sense, Johnstone said.
Denver-based Qwest, which operates in 14 western and northwestern states, is vying for MCI's business customer base, which is considered a lucrative asset in the telecommunications industry. MCI, which has been losing revenue as its consumer and long-distance businesses has declined, is also the last major acquisition target among major phone companies. Last month, SBC Communications Inc. said it would buy AT&T Corp. for $16 billion, and in December, Sprint Corp. and Nextel Communications Inc. announced a $35 billion plan to merge.
Qwest's new bid would pay MCI shareholders $24.60 a share, including $6 a share in cash at the time of a shareholder vote and an additional $3.10 in cash at the deal's closing. Under the original deal, Qwest offered to pay the $9.10 a share in cash after closing. The amount of stock MCI shareowners would get remains unchanged, at $15.50 worth of Qwest stock per MCI share, or 40 percent of the combined company.
The new deal also sets a floor so that if Qwest's share price falls below $4.15, MCI shareholders would receive either more cash or more Qwest shares.
Shares of MCI closed up 26 cents at $23.21 yesterday, before the announcement of Qwest's new offer. Shares of Qwest closed up 15 cents at $4.20 a share; Verizon shares closed down 5 cents at $35.50.
