It’s too easy to start with some snide crack at guys who keep asking out the head cheerleader who’s draped all over the star quarterback, so we’ll leave it to you to fill in your metaphor of choice for Qwest’s announcement that they’re preparing yet a third bid for MCI, which has said yes twice to Verizon’s takeover bid.
This time, however, a hostile takeover is on the table, a source close to Qwest Communications International Inc. told The Associated Press Wednesday.
Qwest's board met earlier Wednesday, one day after MCI Inc. accepted a $7.64 billion acquisition offer from Verizon – about $800 million less than the most recent Qwest bid, but from a much more financially sound suitor.
Nobody from MCI or Qwest was commenting publicly as of the first coffee this morning. But Qwest told the Denver Post it expects to fight until the bitter end to win long-distance provider MCI, and claims to have alternatives in its quest to survive: “We do have a Plan B," chief executive Richard Notebaert recently told The Post.
That plan is to pick up the pieces that antitrust regulators require Verizon and MCI or the players in another big telecom merger, SBC and AT&T, to divest. According to analysts the most valuable pieces could be local fiber-optic loops in several major metro areas.
At the end of February the likes of Forbes magazine were urging Qwest’s CEO Richard Notebaert to give it up already. Notebaert “has showed an admirable tenacity in his continued attempts to acquire MCI,” writes Forbes. “But after two failed bids – and with a third one potentially under way – it’s time for him to give it up.”
W ith his company struggling to stay alive, Notebaert needs to concentrate on other options, Forbes opined: “The smallest of the major regional phone carriers, Qwest is hemorrhaging customers, has $17 billion in debt and had losses of $1.79 billion for 2004. It's hardly the ideal acquirer for a company looking to assure its future prospects.”
Qwest is still geared up for a fight. They’ve hired The Altman Group, a proxy consulting firm, several weeks ago to supplement the investor relations staff. Qwest has in reserve about $960 million in letters of commitment from banks, Janco Partners Inc. analyst Donna Jaegers said.
The Denver-based company, which offers local phone service in 14 Western states and a nationwide fiber-optic network, could increase its offer $1 to $1.50 a share and take it directly to shareholders, Jaegers said. That could prompt Verizon to force an MCI shareholders' vote under the terms of the new deal.
"First of all, instead of talking to the board, they're talking to the shareholders so the dialogue would already be a little different. Plus with a little sweeter bid, then they might stand a chance," Jaegers told the Associated Press.
Terms of the deal which MCI accepted on Tuesday call for Verizon to pay $1 billion more for MCI than it offered in February. It values MCI's shares at $23.10 each, excluding a 40-cent dividend paid to MCI shareholders this month.
Qwest's offer values MCI at $25.60 per share. Both offers include dividends MCI plans to pay before either deal would be completed.
Board members for Ashburn, Va.-based MCI have said they were worried about a merger with Qwest because it is smaller and financially weaker than New York-based Verizon, the dominant local phone company in the Northeast and Mid-Atlantic and a leader in the cell phone industry.
Qwest has $17 billion in debt, lacks a wireless division and faces growing competition from cable and high-speed data companies. But hey, other than that, no worries.
Both Jaegers and Forbes give Qwest grudging praise for their doggedness and admit it hasn’t been completely in vain. "Even if they don't win MCI here, they've at least shown investors that they're willing to do something to take action to improve the situation and to try some innovative thinking," Jaegers said. "They're not just going to sit there and be victims of whatever befalls them."
Forbes notes that while every minute Notebaert wastes chasing after MCI is one he could have spent searching for a more realistic path for Qwest to take, “at least he has accomplished one thing with this futile struggle: a higher profile. Sure, Qwest is going to get humiliated in the MCI deal, but the company was already so poorly regarded that a month's worth of headlines putting it in the same context as Verizon and MCI is nothing to scoff at.”
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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