Qwest Communications International Inc. yesterday increased its bid for MCI Inc. by more than $800 million, trying for the fourth time to woo the Ashburn company to abandon its plans to merge with Verizon Communications Inc.
The tug of war over MCI is in its third month, and Qwest's offer comes after MCI's board of directors rejected three previous offers from the Denver company. In previous filings and statements explaining its decisions, MCI cited Qwest's weaker financial condition, as well as objections from MCI's large corporate customers that, according to MCI, do not want to do business with Qwest.
MCI has rejected three previous bids from Qwest, citing its weaker financial condition compared with rival Verizon.
(Leonard Spoden -- AP)
In a letter addressed to MCI's chairman, Qwest chief executive Richard C. Notebaert yesterday said Qwest's latest offer addresses the board's key concerns. It raised its offer by $2.50 a share to $30 -- an amount MCI's board earlier requested and $6.90 a share more than Verizon's offer.
To address the concerns about potential declines in MCI's business, Qwest also assured MCI it would close a deal even if it lost as much as $25 million -- calculated in terms of earnings before interest, taxes and depreciation, Notebaert said in the letter. But sources close to the deal noted Qwest's latest offer still falls short of the assurances MCI's board sought. MCI wanted assurances that a deal could still close if MCI lost $300 million in business.
The offer will be withdrawn if it is not declared superior to Verizon's by 5 p.m. Saturday, Notebaert said.
MCI spokesman Brad Burns said the board would review the latest offer and would respond in due course.
Qwest, which already has more than $17 billion in debt, also raised $800 million in new financing from a group of MCI's biggest investors, Qwest spokesman Tyler Gronbach said. Many of MCI's largest shareholders include hedge funds and other private investment groups, but the company declined to say which shareholders participated in the financing.
A source close to MCI's major shareholders said the investor group has fewer than 10 investors and includes American Express and Legg Mason Capital Management, which is a large shareholder of both MCI and Qwest. The source, speaking on condition of anonymity because the investor group has not been made public, said the financing was contingent upon Qwest closing a deal to buy MCI. Investors would also collect a fee but would benefit primarily from any increase in Qwest's stock price, sources said.
"Notwithstanding the latest Qwest proposal, we continue to believe Verizon is the best partner for MCI," Verizon said in a statement. Verizon stands to become MCI's largest shareholder, once it closes a pending deal to purchase 13.4 percent of its shares from Mexican telecom magnate Carlos Slim Helu. Many MCI shareholders balked at that privately negotiated deal, claiming Slim is getting a better deal at $25.72 a share, compared with the $23.10 a share Verizon offered to other MCI shareholders.
"The board's going to be forced to call Qwest's bid superior now," unless Verizon dramatically raises its bid, said Patrick Comack, an analyst with Zachary Investment Research in Miami. "MCI's board basically told the world what their requirements are, and Qwest has mostly met those requirements, so I don't see how MCI's board can avoid switching sides."
This month, MCI's board accepted Verizon's offer to buy the company for $7.65 billion, or $23.10 a share. In the meantime, Verizon, which sources have said would probably increase its offer for MCI, must win approval for its deal from MCI's shareholders, who will vote on the transaction as early as June. The company has already pursued regulatory approvals in various states for its planned merger.
"I think Qwest is overpaying, there's no doubt about it," said Comack. "It does show some desperation."