The MCI Inc. board of directors decided yesterday to continue discussion with Qwest Communications International Inc. about the company's $8.45 billion takeover bid before reaching any conclusions about the offer's merit.
The new wrinkle in the takeover battle for MCI appeared likely to push further into the future a decision about the fate of the company. Before yesterday's board meeting, MCI was under pressure from the other bidder, Verizon Communications Inc., to reach a conclusion on the Qwest offer by Monday.
MCI's board made the decision yesterday after receiving permission from Verizon to examine the Qwest bid further. Under the terms of a merger agreement MCI reached last month with Verizon, it could have been required to determine the quality of Qwest's bid had Verizon not agreed to grant the company more time.
MCI agreed to be acquired last month by Verizon for $6.75 billion. But that agreement has been challenged by a number of major MCI shareholders, who say the proposed takeover price is too low, and has further been thrown into jeopardy by the higher offer from Qwest.
"MCI's Board has determined to continue its discussions with Qwest and has instructed its advisors and management to begin this process promptly," a statement released by MCI yesterday aid. "Verizon has consented to MCI's request for a waiver permitting these discussions."
Qwest said it was pleased with the board's decision and confident that it could rapidly address any questions or concerns MCI officials might have about its offer.
"We are encouraged that the MCI board realizes that our bid delivers great value to shareowners and welcome the opportunity to continue our discussions with the MCI board to complete a merger agreement," Qwest said in a written statement.
Verizon, a larger and financially healthier company than Qwest, seems unwilling, in effect, to bid against itself. Rather than increasing its $6.75 billion offer, the company has challenged the viability of a combined Qwest-MCI by asserting that Qwest is financially strapped and is exaggerating the savings it could realize through a merger.
Qwest has attacked Verizon's lower offer as inferior and challenged the MCI board to give its offer a full and fair hearing and review. Initially, Denver-based Qwest asserted that the MCI board failed to take its offer seriously. But following pressure from major shareholders, MCI is undertaking an exhaustive review of its options.
The takeover struggle began last month after Verizon and MCI reached an agreement after SBC Communications Inc. said it would acquire AT&T Corp. In response, Verizon sought to buy MCI, which would make it more competitive by combining Verizon's individual customer base with MCI's greater presence among businesses and other commercial customers.
If the MCI board had determined yesterday that the Qwest bid was superior, it would have started a five-day period during which Verizon could increase its offer. Rather than keeping that pressure on the MCI board, Verizon is pursuing a measured strategy that prevents it from having to choose between increasing its takeover bid for MCI or walking away from the proposed transaction.
Qwest has positioned itself as the outsider in the takeover fight, arguing that its offer is richer and not only would benefit MCI shareholders more in the short run, but also create a scrappier, more aggressive competitor.
MCI's board of directors issued its statement yesterday after the stock market closed for trading. MCI stock closed yesterday at $23.27, up 30 cents.