Qwest to Submit New Bid for MCI
Qwest Communications International Inc. said Thursday that it would submit a new offer to buy MCI Inc., raising the prospect of a bidding war with Verizon Communications Inc.
Qwest said Chairman Richard Notebaert wrote MCI’s board Thursday, saying the company would make the offer after reviewing the details of Verizon’s bid. But it did not disclose what it would be willing to pay for the No. 2 long-distance and corporate telecommunications firm.
“We would like to advise you that once we have completed our review of the Verizon merger agreement, we do intend to submit a modified offer to acquire MCI,” the letter said, according to a filing with the Securities and Exchange Commission.
Verizon and MCI declined to comment. The two companies filed the details of their merger agreement earlier Thursday. Shares of MCI were up more than 4% in after-hours trading.
Qwest, the fourth-largest U.S. local telephone company, said Wednesday that it had offered a deal it valued at $8 billion Sunday, which MCI rejected in favor of Verizon’s bid. At Thursday’s closing share prices, Qwest’s last offer would be worth $7.6 billion, compared with $6.7 billion for Verizon’s winning bid.
Several MCI shareholders have complained in recent days that the Verizon offer undervalued MCI and urged Qwest to come forward with a better bid. MCI Chief Executive Michael Capellas has met with shareholders trying to alleviate their concerns.
“I think MCI’s more cognizant at this point of its shareholders’ interest in Qwest’s proposal,” said John Paulson, whose Paulson & Co. hedge fund owns 10.8 million MCI shares.
Industry analysts have said that although Qwest’s bid offered some advantages to MCI shareholders, it was unlikely to win a fight with Verizon, whose market value is 14 times larger than Qwest’s. Verizon expects to reap savings and increased revenue with a net present value of about $7 billion from the deal. Sources familiar with the talks said Qwest was seen as the weaker suitor because of its debt load, lower cash flow and less attractive business profile.
Qwest’s lingering legal troubles also may have concerned MCI’s board. Qwest reached a $250-million settlement with the SEC in October but has set aside $500 million more for legal settlements and warned that those reserves could rise.
According to its most recent quarterly report, Qwest is also under investigation by government purchasers and could be barred from government deals.
Shares of Denver-based Qwest fell 13 cents to $3.84 on the New York Stock Exchange. Shares of Ashburn, Va.-based MCI fell 21 cents to $20.66 on Nasdaq. Shares of New York-based Verizon fell 44 cents to $35.68, also on the NYSE.
