Verizon boosts bid

MCI accepts

Offer is still $1 billion less than rival Qwest's

Non-monetary issues are key

Denver company's debt, soundness raise doubts

March 30, 2005|By Jon Van | Jon Van,CHICAGO TRIBUNE

CHICAGO - MCI Corp. said yesterday that it again wants to marry Verizon Communications Inc., after the New York phone company sweetened its proposal by almost $1 billion yesterday to ward off the attentions of Qwest Communications International Inc.

Even though the new offer is nearly $1 billion shy of Qwest's, MCI's board preferred Verizon's.

MCI Chairman Nicholas deB. Katzenbach pointed to the strength of Verizon's "competitive position and the financial certainty" of its future in explaining why the board prefers a deal valued at $7.64 billion to Qwest's offer of $8.45 billion.

Richard C. Notebaert, Qwest's chief executive, said the telecommunications company will reassess its position, even though he still considers his company's bid superior.

MCI's board initially decided to go with Verizon in February, two weeks after SBC Communications Inc. said it would buy AT&T Corp.

Although the consumer long-distance businesses of AT&T and MCI are in decline, both companies are attractive because of their large number of business customers and government agencies.

Neither SBC nor Verizon has had much success cracking that market on its own, and the acquisitions of AT&T and MCI would keep the nation's two largest phone companies evenly matched as they compete more aggressively with each other.

Denver-based Qwest, the smallest of the nation's regional phone companies, had been in merger talks with MCI for months before Verizon entered the picture. Notebaert was encouraged to continue pursuing Qwest by several MCI shareholders who considered Verizon's original offer of $6.75 billion was too low.

MCI management and its board favored Verizon because it is financially stronger than Qwest, which is struggling with $17 billion in debt, an amount more than double the value of the company's stock.

Notebaert raised his company's bid for MCI to $8.45 billion from about $8 billion in an attempt to force MCI's board to reconsider.

Ivan G. Seidenberg, Verizon's chief executive officer, warned MCI's board that a Qwest deal would doom the company.

He said Notebaert was unrealistic in calculating savings of $1.7 billion in expenses for a combined Qwest-MCI, including up to 15,000 job cuts.

He compared the situation to the 1997 takeover of MCI by WorldCom Inc., which resorted to accounting fraud when its predictions of savings proved wrong.

Few observers expect that yesterday's decision by MCI's board will be the last word in this drama. MCI's stock rose 84 cents, or 3.6 percent, to close at $23.78, a little more than the $23.50-a-share value of Verizon's new offer.

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 standalone entity," said Andy Belt, a vice president with Adventis, a Boston technology consultant. "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 doesn't offer more, it might help dissident MCI shareholders file a lawsuit seeking to block the Verizon deal. The shareholders could argue that they are losing money because the board didn't take the top offer from Qwest.

"Once you decide to sell your company, you have to seek the best price that's reasonably available," said Chicago attorney Michael A. Nemeroff. "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."

Notebaert could decide to take his 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."

The Chicago Tribune is a Tribune Publishing newspaper.

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