Verizon Is Winner in MCI Battle
Verizon Communications Inc. on Monday won a bitter three-month bidding war for long-distance carrier MCI Inc. after its rival abandoned the struggle.
Qwest Communications International Inc. pulled out after receiving word that MCI directors had turned down its final offer in favor of a newly sweetened bid from Verizon.
Although Qwest offered a higher price, $9.75 billion to Verizon’s $8.5 billion, MCI said Verizon’s financial strength and better fit with MCI operations made it the preferred buyer.
In a statement, Qwest said it was no longer worth pursuing MCI under a process that “seems to be permanently skewed against Qwest.”
“Unfortunately, the latest in a string of decisions reconfirms what we have believed all along: that MCI never intended to negotiate in good faith with Qwest nor maximize shareowner value,” the company said.
A Qwest spokesman said the Denver-based company’s decision was final. He would not say whether Qwest would sue MCI, but legal experts said a court challenge would probably fail.
Qwest’s action paves the way for Verizon, the nation’s largest phone company, and MCI to create a global goliath on a par with the pending combination of AT&T; Corp., the nation’s largest long-distance company, and SBC Communications Inc., the second-largest regional carrier. SBC’s acquisition of AT&T; is awaiting approval by shareholders and regulators.
Although the bidding war has dragged on since February, the end came quickly Monday. First Verizon, under pressure to respond to a $30-per-share offer by Qwest, raised its bid from $23.10 per share to $26.
MCI’s board, which 10 days ago had declared Qwest’s cash-and-stock bid superior, immediately decided to accept the Verizon offer of cash and stock.
In explaining its rationale, MCI added a new twist: “a large number of its most important business customers” preferred a deal with Verizon and some renewing customers asked for clauses terminating their contracts should Qwest buy MCI.
“From the standpoint of risk versus reward, Verizon’s revised offer presents MCI with a stronger, superior choice,” MCI Chairman Nicholas Katzenbach said.
Verizon, which reportedly asked for an MCI statement about possible customer defections, pointed to its stronger financial condition, its Verizon Wireless service and its plan to invest in MCI’s operations.
“The evolving nature of the telecommunications industry requires that effective competitors have financial strength and a full array of offerings,” said Ivan G. Seidenberg, chairman of New York-based Verizon, which is the second-biggest phone company in California.
Qwest responded angrily. “By accepting a lower offer, without even contacting Qwest, and by reportedly allowing Verizon to instruct MCI to impugn Qwest, it is only fair to conclude that MCI is more interested in bending to Verizon’s will than serving its shareholders,” Qwest said.
The smallest of the four regional network owners, Qwest said it had reduced costs in its land-line business by $600 million while increasing its profit margin. Land-line service is seen as a declining business with heavy costs and a small profit margin.
Many of MCI’s major shareholders, mostly hedge funds used to taking risks, had argued for a deal with Qwest because it would have provided more cash and delivered it sooner.
Noting a “strong bond” between Qwest and those shareholders, analyst Nancy Kaplan of Adventis, a Boston consulting firm, figured that both would take their differences with MCI to court. Shareholders already have filed lawsuits accusing MCI of failing to act in their best interests by favoring the lower bid.
But Eric Talley, a USC corporate law professor, said a lawsuit by Qwest would not fare well. Qwest would have to prove MCI had rigged the bidding or bargained in bad faith. Directors appear to have considered Qwest’s proposals thoroughly enough to escape liability, he said.
Qwest shares rose 5 cents Monday to $3.42 and Verizon shares fell 83 cents to $34.97, both on the New York Stock Exchange. MCI shares also lost 83 cents to $25.70 on Nasdaq.
