MCI Inc. accepted a raised offer from Verizon Communications Inc. today, spurning repeated attempts by Qwest Communications International Ltd. to break up the merger agreement between those two companies.
Verizon's new offer totals $7.65 billion in cash and stock, or $900 million more cash than its previous offer. Qwest, which is smaller and financially weaker company, offered $8.45 billion, or $26 a share in cash and stock.
The board's decision comes after weeks of wrangling between Qwest, Verizon and MCI's shareholders, as the board of directors of MCI deliberated which offer represented the best deal for the Ashburn-based MCI.
The revised Verizon offer, submitted to MCI last night, added $2.75 in cash per MCI share, which increased its offer to $23.50 a share. The amount of stock Verizon is offering, .4062 Verizon shares for every MCI share, is unchanged, although the new offer includes a provision to protect MCI shares against a drop in Verizon's share price.
The company also raised the amount of the breakup fee, if the new agreement is severed, to $240 million, up from $200 million. In addition, under a termination of the agreement, MCI would have to pay $10 million to Verizon for its expenses.
Verizon and MCI originally agreed to merge on Feb. 14, shortly after SBC Communications Inc. agreed to purchase AT&T Corp. for $16 billion.
"MCI's board has been closely and carefully evaluating all of the recent developments," Nicholas deB. Katzenbach, the MCI chairman, said in a statement. "We believe Verizon's substantial increase in its offer, the strength of its competitive position and the financial certainty at close make this offer compelling to our shareholders, customers and employees."
Wall Street analysts have said Verizon represents a better deal, in part because it has a better network in the major cities where most of MCI's business customers are based. It also has a wireless unit, which it could sell to MCI corporate customer base, and is investing billions in a network to deliver cable-like video services. By comparison, Qwest has a local network in 14 mostly rural western states, and it does not have a wireless unit, and it does not have the financial capital to build a new fiber-optic network to sell video services to the home.
It is still unclear whether Verizon's sweetened offer will satisfy MCI shareholders, many of whom have been grousing that the original offer was too low. Many were vocal in their opposition to that deal, and they encouraged MCI's board to reconsider Qwest's offer.
"Verizon had to do something because shareholders had told them that if they held a vote today, the only people voting for that deal would be [MCI] insiders," said David Ahl, a consultant who advises four major institutional shareholders. "It's a first step in what will be a legitimate auction for MCI," he said, adding that Verizon's current offer is still of less value to his clients than Qwest's offer.
