Qwest gave MCI one week to decide if it will jilt merger partner Verizon in favor of a richer buyout proposal from Qwest.
NEW YORK — Qwest issued a deadline to MCI yesterday, giving the long-distance telephone company one week to decide if it will jilt merger partner Verizon in favor of a richer buyout proposal from Qwest.
The ultimatum was delivered in a letter to MCI’s board that also said Qwest’s lenders have committed an extra $500 million in financing to back the $8.45 billion bid, which is currently worth $1.9 billion more than the Verizon deal.
MCI declined to comment on the letter or on whether a week of negotiations with Qwest had proven fruitful. The MCI board met yesterday, but it was unclear whether any announcements were imminent.
“Since both of us recognize the importance of reaching a decision promptly, we think it is reasonable to inform you that if we have not executed an agreement on or before midnight, April 5, 2005, our offer will be withdrawn,” the letter from Chief Executive Richard Notebaert said.
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The deadline may turn the tables on MCI, which until now has set most of the rules for Qwest’s unsolicited courtship.
Having spurned Qwest’s original $8 billion offer, MCI has seemed to hold the upper hand. Its board has shown little enthusiasm or urgency to discuss even the sweetened $8.45 billion bid Qwest submitted two weeks ago despite growing pressure from some MCI shareholders to consider the higher bid.
Under the terms of its merger agreement with Verizon, reached in mid-February, MCI has several options at this point.
The company could reject Qwest’s courtship again and stick with Verizon, or it could declare Qwest’s bid “superior,” a determination that would trigger a five-day window for Verizon to respond with a better offer.
MCI also could try to buy itself more time by announcing that the Qwest offer has the potential to produce a superior deal, though the deadline set by Qwest could make that option less likely.
Qwest, the local phone company in Washington and 13 other states across the Rocky Mountains and Pacific Northwest, has offered $26 per share for MCI, consisting of $10.50 in cash and Qwest shares worth $15.50.
Verizon, which dominates phone service in the Northeast and Mid-Atlantic, has agreed to pay stock and cash currently worth $20.10 per MCI share. That includes $6 cash and Verizon stock currently worth $14.10.
While Qwest’s bid is higher-priced, MCI has said that Qwest’s financial health is inferior.
Qwest also lacks its own national wireless business and a strong corporate business, making it harder to compete with both Verizon and SBC, which in January agreed to acquire AT&T and owns Cingular Wireless in partnership with BellSouth.
Still, Qwest has argued that its deal will generate more than twice as much savings as Verizon has promised, and that a Qwest-MCI deal would raise fewer objections from government officials concerned about lost competition. The savings include up to 15,000 job cuts, or more than twice as many as Verizon plans.