A major MCI Inc. shareholder yesterday told chief executive Michael D. Capellas that MCI's directors should be able to get more for the company than the $6.75 billion offer its board of directors has accepted from Verizon Communications Inc.
Leon G. Cooperman, founder of hedge fund Omega Advisors Inc., called a retooled offer submitted Thursday by Qwest Communications International Inc. "disappointing" but urged the company to consider it.
"I get so excited when I hear about the prospects of our business. Then I see the price we're willing to sell it for, and it doesn't really compute or relate with the optimism you express about your business," Cooperman said during a conference call with Capellas. Cooperman controls 3 percent of MCI's 317.9 million shares.
Capellas stood by the Verizon deal but promised to consider Qwest's new competing bid.
"Obviously, we entered into [the Verizon agreement], so we believe in it. So we will do our utmost to do that," Capellas said during the conference call to discuss the company's fourth-quarter earnings report. "At the same time, we will just continue to honor our fiduciary responsibilities" to evaluate Qwest's latest offer.
On Feb. 13, MCI's board of directors agreed to sell the company to Verizon for $6.75 billion in cash and stock, spurning an $8 billion offer from Qwest, which is smaller and less financially secure than Verizon. On Thursday, Qwest submitted a new offer of the same total but would give shareholders a cash payment sooner than originally proposed.
MCI officials, who have been talking to various shareholders, declined to discuss how many shareholders share Cooperman's opinion. Other shareholders declined to comment or did not return phone calls seeking comment.
MCI's board will meet to discuss the revised offer, but Capellas yesterday restated the reason it made an agreement with Verizon.
"In Verizon, we see a partner that complements our product portfolio, adding wireless voice and data, [broadening] our customer base, increasing consumer confidence, and lowering our access charges," Capellas said.
But Cooperman said that since that deal, Verizon's share price has declined, reducing the value for shareholders.
Also since the original deal, the General Services Administration cleared Qwest, after an investigation into its accounting practices, to continue to do business with the federal government. MCI's board of directors considered Qwest's possible debarment from federal contracts a liability when it approved the Verizon deal, a source close to the MCI board's private negotiations has said.
Meanwhile, MCI's latest financial report showed the incentive for the company to merge with a larger player to survive.
Its sales dropped in all segments, although less so in its most profitable corporate customer segment. Its biggest declines came from its consumer division, which declined 21 percent year-over-year.
The company stopped marketing its popular "Neighborhood" local and long-distance packages amid regulatory changes that prevented MCI and other companies from leasing local phone lines at heavily discounted rates.
The company said it would be investing more in offering security, hosting and other business computing services to its large corporate and government customers. It cited its recent acquisition of security consulting firm NetSec Inc. in Herndon as a move in that direction.
MCI, which was formerly known as WorldCom, lost $32 million (10 cents per share) on revenue of $4.97 billion during its fourth quarter. During the comparable period a year earlier, WorldCom posted $22.21 billion in profit, the result of a one-time gain from its bankruptcy process. For all of 2004, MCI lost $3.89 billion ($12.12) on revenue of $20.69 billion.
