According to the Associated Press, Verizon is widely expected to boost its bid for MCI Inc. again now that the long-distance phone company has embraced a rival $9.75 billion bid from Qwest, “though it remains unlikely Verizon will need to pay as much to win MCI back.”
No, but they will have to pay more, a lot more than the $6.7 billion MCI originally agreed to. As of the first coffee this morning they had not made a counter-offer.
Analysts think Qwest will continue being treated as a second-rate suitor, and its "best and final" offer will amount to just another bargaining chip for MCI's board. Nobody’s expecting Verizon to throw in the towel and surrender after a three-month bidding war.
Starting today, Verizon faces a five-day window to respond with an improved offer or walk away with a $240 million breakup fee. It also has the right to ignore that deadline and force MCI investors to vote on the current deal, hopeful that enough fear Qwest's shaky finances and strategic outlook.
USA Today reports that “under the terms of Verizon's merger agreement with MCI, Verizon has the right to make a counteroffer. Or Verizon can stand pat and force a shareholder vote on its offer of $23.10, which is 30% less than the $30 a share that Qwest is currently offering.
“If Verizon decides to walk, MCI would have to pay it $240 million, plus $10 million to cover legal fees. At that point, Qwest would be free to pursue a merger, but it wouldn't be free of Verizon, which is about to become MCI's biggest shareholder.
“Verizon recently bought a 13.4% stake in MCI from Mexican billionaire Carlos Slim Helu. Verizon agreed to buy his 43.4 million shares for $25.72 each. The transaction is expected to close shortly.”
Verizon spokesman Peter Thonis declined to comment beyond an April 23 statement saying, “Verizon believes its pending transaction with MCI creates long-term, as well as short-term, value.” The company also said it will consider all its options.
Regardless of who wins, the AP writes, more analysts are questioning whether the bidders are at risk of overpaying for MCI's struggling business.
Qwest's $30 offer values MCI about 50 percent higher than when the bidding began.
And on the basis of profit forecasts, it also values MCI's earnings prospects as much as 50 percent higher than those at AT&T Corp., whose $16 billion deal to be acquired by SBC Communications Inc. set off the scramble for MCI.
Bloomberg news is reporting that MCI's board, while acknowledging Qwest's bid is better, said over the weekend that it still wants to pursue the Verizon deal. Verizon is thought unlikely to match Qwest's bid and instead may raise the offer to as high as $25.72, the amount it paid for the 13 percent stake owned by billionaire Carlos Slim.
However, MCI's board can't officially swing its recommendation from Verizon Communications Inc. to Qwest until the five days elapse. The board has until May 3 to recommend its shareholders vote for that deal.
At least one of the hedge funds that hold large chunks of MCI's stock remained determined Sunday to press MCI's board to abandon all considerations but the highest price, Qwest’s far murkier future prospects and far shakier finances be damned.
"It is time for Verizon to match the Qwest offer or walk away next week and not hold the entire process hostage by forcing a vote on their current offer that has no chance of approval," Elliott Associates L.P. said in a statement.
The hedge fund also stressed that a new Verizon offer matching only what that company agreed to pay two weeks ago for a 13.4 percent stake in MCI would be inadequate.
Verizon's deal with Mexican billionaire Carlos Slim Helu valued MCI at $25.72 per share. That's more than 10 percent higher than the $23.10 Verizon has already agreed to pay the rest of MCI stockholders, but still nearly 15 percent below the $30 Qwest offer.
"We continue to consider Qwest's new offer better than the offer Verizon has made for the Slim shares," Elliott said. No doubt Elliott also thinks he who offers the bigger engagement ring makes the better husband as well.
"We don't believe the risks associated with acquiring and integrating MCI are worth the prices being offered by either Qwest or Verizon," said Ben Silverman, an industry analyst for the investment newsletter FindProfit.com. "Thus, the only winners in this equation stand to be short-term MCI shareholders."
MCI’s board has repeatedly expressed concern about Qwest's $17 billion debt load and the long-term value of the Qwest shares MCI investors would receive as partial payment. The MCI board also has questioned whether Qwest can meet its forecast of nearly $3 billion a year in cost savings from the proposed merger.
Silverman said the merger of two weak players like Qwest and MCI could play ou in Verizon's favor because "in a few years, the company may very well have an opportunity to buy a combined Qwest-MCI at a much lower price."
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.
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