Qwest's talks with MCI are on again

New offer of $8.94 billion surpasses Verizon's accepted bid by 20%

April 02, 2005|By Jon Van | Jon Van,CHICAGO TRIBUNE

CHICAGO - The on-again, off-again talks between MCI Inc. and Qwest Communications International Inc. are on again.

After receiving a sweetened offer of $8.94 billion from Qwest, MCI's board agreed yesterday to resume acquisition talks even though the board has twice opted to accept lower offers from Verizon Communications Inc.

MCI has Verizon's permission to talk to Qwest until MCI shareholders vote on the Verizon deal at a date that hasn't been set. In making his latest offer, Qwest Chief Executive Officer Richard C. Notebaert had set a Monday deadline for a response from MCI.

Qwest's latest bid tops Verizon's offer of $7.5 billion by about 20 percent. Several MCI shareholders have expressed a preference for taking the higher offer. MCI's board said Verizon's stronger financial status makes it a more attractive suitor.

Even though Notebaert is offering more money, he has had difficulty getting the attention of MCI's board. Now he wants to take the matter to MCI's shareholders.

In his last letter to Nicholas deB. Katzenbach, MCI's chairman, Notebaert scolded MCI for talking to Verizon while ignoring Qwest and accused MCI's board of "a complete abdication of its duties to act in the best interest of its shareholders."

Notebaert also said that "it is difficult to understand how the goal of maximizing value for MCI shareholders is served by consistently favoring one party over another."

Notebaert, who headed Chicago-based Ameritech before selling it to SBC Communications Inc. in 2000, is showing far more tenacity in pursuing MCI than he has in any other deal.

In 2003, he made a deal to buy Allegiance Telecom Inc., a competitive local carrier that was in bankruptcy, for more than $300 million. But when Carl C. Icahn, chairman of XO Communications Inc., started a bidding contest for Allegiance, Notebaert quickly walked away from the deal.

In the MCI case, however, Notebaert is willing not only to keep raising the ante, but he also seemingly refuses to take no for an answer.

"Clearly, this is a merger Notebaert believes will transform his company," said Michael Weaver, Chicago-based managing director for Fitch Ratings. "Qwest's bid now exceeds the total capitalization of its own company, which is very unusual."

Whether Notebaert's tenacity will pay off is uncertain, but Weaver said Verizon's chief executive, Ivan G. Seidenberg, doesn't view acquiring MCI with the same fervor that has gripped Notebaert.

"Verizon sees MCI as an opportunity to acquire several large enterprise and government customers," Weaver said. "It gives them a speed advantage in a market that they could probably penetrate by themselves. But Notebaert sees this as a transformation of his business."

The Chicago Tribune is a Tribune Publishing newspaper.

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