Qwest Communications International Inc. is in advanced discussions to buy MCI Inc., even as MCI pursues potential alternative deals with companies such as Verizon Communications Inc. and BellSouth Corp., said sources close to the negotiations.
The talks remain fluid as Ashburn-based MCI seeks to make the best deal it can as soon as it can, said the sources, who spoke on condition of anonymity while the private talks continue. Qwest's offer, the sources said, is for about $6.4 billion in stock, equal to MCI's market value.
Sources say Qwest Communications is offering MCI about $6.4 billion in stock.
(Doug Mills -- AP)
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MCI has been actively seeking a buyer for a year, the sources said. But the prospect of a merger has taken on new urgency since this week's announcement that SBC Communications Inc. plans to buy long-distance giant AT&T Corp. for $16 billion.
A Qwest-MCI deal could be reached as early as Monday, said a Wall Street source close to the talks. Spokespeople for MCI, Qwest, Verizon and BellSouth declined comment. After the Wall Street Journal reported the MCI-Quest talks yesterday, MCI's shares rose 47 cents, or 2.4 percent, to close at $20.15. Qwest shares rose 20 cents, or 4.8 percent, to close at $4.40.
Many analysts and industry insiders greeted the potential merger with skepticism. They said putting MCI and Qwest together wouldn't necessarily produce a strong competitor able to take on a merged SBC and AT&T.
"From a long-term strategy, it doesn't make sense," said Muayyad Al-Chalabi, an analyst with South San Francisco-based research firm RHK Inc. Qwest is the weakest financially and strategically among the regional phone companies, he said.
"The question is, when you put them together, do you get something better or something worse?"
Neither Qwest nor MCI owns a wireless network. Cellular service is the prime generator of growth for companies such as Sprint, SBC and Verizon.
MCI's most valuable asset is its base of business customers, which requires a network that can transport voice and Internet traffic in and around big cities. But Qwest's local phone network doesn't connect to many of those areas, reducing the opportunity to cut network costs. Denver-based Qwest's 14-state network spans mostly rural states such as Arizona, New Mexico, Utah, North Dakota, South Dakota and Colorado, with its biggest markets in Seattle, Denver, Minneapolis and Phoenix.
Both companies have been saddled with accounting scandals in recent years. MCI, formerly WorldCom Inc., completed a $11 billion financial restatement last year, and former chief executive Bernard J. Ebbers is on trial, charged with fraud and falsifying documents. Qwest paid $250 million in a settlement with the Securities and Exchange Commission late last year, the Justice Department is investigating the company, and the SEC is investigating several former Qwest executives.
