Once again, MCI said it wants to marry Verizon after the New York phone company yesterday sweetened its proposal by almost $1 billion to...
CHICAGO — Once again, MCI said it wants to marry Verizon after the New York phone company yesterday sweetened its proposal by almost $1 billion to ward off the attentions of Qwest.
Verizon’s new offer is still nearly $1 billion shy of Qwest’s, but MCI’s board thinks the nation’s largest phone company is, well, just better-looking.
It was money, not love, that MCI’s chairman mentioned in announcing the board’s decision.
“The strength of its competitive position and the financial certainty” of Verizon’s future were cited by Nicholas Katzenbach in explaining why the MCI board prefers a deal valued at $7.64 billion to Qwest’s offer of $8.45 billion.
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Richard Notebaert, Qwest’s chief executive, said he will reassess his position even though he still believes his bid is superior.
Few observers expect that yesterday’s decision by MCI’s board will be the last word in this drama.
MCI’s stock shot up 84 cents, to close at $23.78, which is somewhat higher than the $23.50-a-share value of Verizon’s new offer, suggesting the market may expect the bidding war to continue.
MCI’s first decision to go with Verizon came in February, two weeks after SBC Communications said it would buy AT&T.
While the consumer long-distance business of AT&T and MCI is in decline, both firms are attractive because of their large base of business customers and government agencies.
Neither SBC nor Verizon have had much success cracking that market on their own, and the acquisitions of AT&T and MCI will keep the nation’s two largest phone companies evenly matched as they compete more aggressively with each other.
Qwest, the largest local-phone company in Washington but the smallest Baby Bell, had been in merger talks with MCI for months before Verizon entered the picture.
Notebaert was encouraged to continue pursuing MCI by several MCI shareholders who believed that Verizon’s original offer of $6.75 billion was too low.
MCI management and its board favored Verizon because the company is financially stronger than Qwest, which is struggling with $17 billion in debt — an amount more than double the total value of the company’s stock.
Notebaert raised his bid for MCI to $8.45 billion from about $8 billion to force MCI’s board to reconsider.
Ivan Seidenberg, Verizon’s chief executive officer, cautioned MCI’s board that a Qwest deal would doom the company’s future.
Seidenberg said Notebaert’s calculations of saving $1.7 billion in expenses for a combined Qwest/MCI, which includes up to 15,000 job cuts, are unrealistic.
He compared them to the 1997 takeover of MCI by WorldCom, which resorted to accounting fraud when its predictions of savings proved wrong.
What happens next is up to Notebaert, who has been tenacious in seeking to buy MCI.
“Qwest badly needs this deal to have a better future than it faces as a stand-alone entity,” said Andy Belt, a vice president with Boston tech consultancy Adventis.
“I don’t see Verizon doing anything else unless Qwest raises its offer again. And it’s hard to see how they can stretch their financing much more.”
If Qwest cannot or will not offer more money, it might help dissident MCI shareholders file a lawsuit seeking to block the Verizon deal.
The shareholders could argue they’re losing money because the board didn’t take the top offer from Qwest, said Chicago attorney Michael Nemeroff.
“Once you decide to sell your company, you have to seek the best price that’s reasonably available,” he said.
“But ‘reasonably available’ has real meaning. I think MCI’s board is concerned that the stock component of Qwest’s bid doesn’t represent the best price when compared to Verizon’s stock,” Nemeroff said.
Qwest could decide to take its case directly to MCI’s shareholders, said Dave Novosel, an analyst with Gimmecredit.com.
“Notebaert hasn’t had much luck negotiating with MCI’s management or its board,” he said. “So even if he can raise his bid, he may figure it’s useless to go back to the board again.
“He might take that money to make a tender offer to MCI’s shareholders to buy their stock. If he could get enough stock, he could install his own board and do a deal.”