[February 25, 2005]

Qwest Sweetens MCI Bid

By David Sims, TMCnet CRM Alert Columnist

Although spurned in favor of rival suitor Verizon, Qwest is determined to walk MCI down the aisle. They’ve just “modified” their $8 billion bid for MCI by guaranteeing the value of the stock portion of the bid.

After MCI Inc.’s board decided to accept Verizon’s takeover bid, rejecting Qwest’s, Qwest Chairman Richard Notebaert vowed Qwest would “keep every door open.”

He proved as good as his word, as the Associated Press reported this morning that Qwest Communications International Inc. has modified its $8 billion offer for MCI Inc. “by adding a mechanism to guarantee the value of the stock portion of the bid, setting the stage for another round in its competition with Verizon Communications Inc. for the long-distance company.”

Qwest also offered a faster cash payout to shareholders but did not increase the $8 billion value of the bid, according to a Securities and Exchange Commission filing on Thursday.

The new offer guarantees the stock portion of the deal will hold at $15.50 per share by adjusting the amount of Qwest stock paid if the shares fall below $4.15 per share.

Research analyst Donna Jaegers of Janco Partners said the revised Qwest bid might lead to another offer from Verizon. “It’s not over by any means.”

The revised bid also changes the schedule of cash payments to MCI shareholders from four quarterly dividends of 40 cents and a closing payment of $7.50 to a $6 per share one-time payment upon shareholder approval and a closing payment of $3.10 a share.

MCI’s board said it would thoroughly review the new Qwest offer, as it has previous offers. Although it was known at the time that Qwest was offering larger dollar figures than Verizon, most analysts agreed that Verizon had more stable long-term prospects, a more customers and wireless options than Qwest, prompting MCI’s board to accept less cash from Verizon.

Nevertheless some heavyweight MCI investors were unhappy with the Verizon deal, complaining that Verizon had undervalued MCI. Verizon offered $6.75 billion for MCI which MCI’s board accepted, despite receiving a offer from Qwest in the $7.3 to $7.6 billion range.

John Berkowitz, president of Short Hills, which owns 3.5 per cent of MCI, told Bloomberg Verizon’s offer was “very disappointing for MCI owners.” At least one shareholder, hedge fund manager Elliott Associates, has said it would vote against the Verizon-MCI merger, saying Qwest’s initial offer was superior.

Qwest, the local phone carrier in 14 Western and Midwestern states and owner of a national fiber-optic network, needs all the help it can get to gussy up its image if it wants MCI to say “I do.” The company is weighed down by more than $17 billion in debt, a weak wireless division and competition from cable and high-speed data companies, the AP reports.

Plus Qwest reached a $250 million settlement with the U.S. Securities and Exchange Commission last October, but has set aside another $500 million for legal settlements, warning that the amount could rise.

Should MCI choose to go with Qwest, it must pay Verizon a $200 million return-the-ring breakup fee.

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