[April 4, 2005]

Qwest Sends 'Superior Proposal' to MCI

By David Sims, TMCnet CRM Alert Columnist

The soap opera continues.

In Qwest’s quixotic quest to buy MCI, the Denver Business Journal is reporting that Qwest Communications International Inc. has sent a merger ageement to MCI Inc., which it hopes the telephone company will sign by midnight April 5.

Denver-based Qwest is offering nearly $9 billion to purchase MCI, of Ashburn, Va. MCI already has agreed to a merger with Verizon Communications Inc., but late last week agreed to reopen talks with Qwest.

"We have delivered to MCI's advisors signed financing commitments to fund a Qwest-MCI transaction," according to a statement Qwest issued early Monday morning. "In addition, we have provided to MCI a merger agreement that Qwest is prepared to sign.”

Qwest admitted that MCI has not, well, actually agreed to its latest drunken sailor proposal. UBS Investment Research notes that Qwest's latest bid would come to about 5.5 times MCI's estimated Ebitda for 2005, a higher multiple than SBC Communications Inc. is paying in its $22 billion buyout of AT&T Corp.

MCI said it has received a waiver from Verizon to allow the renewed talks with Qwest. The talks will continue until MCI shareholders vote on whether to accept Verizon's offer.

As The Deal notes, Qwest has at least gotten the board of MCI to acknowledge the company's existence, although it took at $9 billion bid to do so. In a statement released later in the day, Qwest whined for MCI "to cease its favoritism, stop attempting to tilt the regulatory playing field and run a fair, transparent, complete and timely sales process."

Qwest's current bid comes to about $27.90, though the total includes a 40 cent per share dividend already paid to MCI shareholders. The offer breaks down into $13.90 in cash and $14 in stock, about 19% higher than Verizon’s offer of $23.50, with $10.50 in cash and $15.50 in stock.

Some heads are turning. New York-based Elliott Associates LP, which says it owns 11.2 million MCI shares, for a 3.5% stake, released a statement supporting the Qwest offer on Friday.

"Elliott believes that the latest Qwest bid for MCI is superior to Verizon's offer and urges the MCI Board to declare the Qwest offer as superior," the statement said.

As USAToday is reporting, MCI's board has so far been willing to accept less upfront value from Verizon in exchange for long-term strategic security. Qwest, which has $17.5 billion in debt and just $14 billion in annual revenue, is one of the most highly leveraged carriers in telecom. Also, Qwest's stock price, $3.64 at Friday's close, has fluctuated wildly the past year. That is a concern, given the makeup of its offer.

Verizon, by comparison, is the USA's largest communications company, with more than $70 billion in annual revenue. It also has a majority stake in Verizon Wireless, the No. 2 carrier behind Cingular.

CIBC World Markets analyst Tim Horan suggested Verizon might go ahead and let Qwest merge with MCI, then swoop in later and buy the combined enterprise.

David Sims is contributing editor and CRM Alert columnist for TMCnet.

To discover how contact centers can save money and increase productivity by making the switch to IP Telephony, be sure to attend TMC's IP Contact Center Summit May 24-26, 2005, in Dallas, Texas. IP Contact Center Summit is co-located with the Speech-World conference, where you can get expert guidance in the deployment of speech technologies to strengthen customer relationships.