[February 25, 2005] Elliott Associates Believes Revised MCI Bid by Qwest Superior to Verizon Offer Tweet NEW YORK, Feb. 25 /PRNewswire-FirstCall/ -- Elliott Associates, L.P. (together with funds under common management), a substantial shareholder of MCI Inc. , today sent the following letter to the Board of Directors of MCI: February 25, 2005 Board of Directors MCI Inc. 22001 Loudoun County Parkway Ashburn, VA 20147 Re: Proposed Sale of MCI Inc. and Revised Offer from Qwest Communications International, Inc. Ladies and Gentlemen: On February 23, 2005, Elliott Associates, L.P. wrote a letter to you, the Board of Directors ("Board") of MCI Inc. (the "Company"), stating our intention to not vote for the Agreement and Plan of Merger (the "Proposed Merger") between Verizon Communications Inc. and the Company. Further, we expressed our view that the Board should have further pursued the offer (the "Initial Offer") put forth by Qwest Communications International, Inc. ("Qwest") to acquire the Company, as outlined in Qwest's February 16, 2005 8- K. We now write to you to express our view with regard to the most recent Qwest proposal to acquire MCI, made on February 24, 2005 (the "Revised Offer"). We believe it to be superior to the Proposed Merger. Specifically: * The Revised Offer provides $24.60(1) of value per share of MCI, a 20% premium to the $20.42(2) of value implied by the Proposed Merger; * The collar mechanism(3) insulates, to a certain extent, MCI shareholders from volatility in Qwest stock; * Qwest represents that certain provisions of the proposed merger agreement would be more favorable to MCI. In addition to receiving $3.10 more in cash versus the Proposed Merger, the Revised Bid pays a larger portion of such cash consideration on an accelerated basis. Further, Qwest indicates that the impact of any required divestitures will be judged based on the materiality to the combined enterprise. This is a substantial increase over the threshold contemplated by the Proposed Merger. We also believe that the Revised Offer is superior to the Initial Offer for the following reasons: * The Revised Offer contains the protective collar mechanism, as described above; * The Revised Offer follows Qwest's favorable resolution of the General Services Administration inquiry. This is highly significant, eliminating the cloud that existed at the time of the Initial Offer on Qwest's future ability to service government customers, thus improving the value of Qwest as a merger partner; * The Revised Offer appears to be positioned as a floor from which further negotiations may be conducted by MCI. Specifically, the opening paragraph of Qwest's letter of yesterday expressly invites MCI to provide guidance to Qwest as to how it might address your concerns and improve the acceptability of its offer. In contrast, the Proposed Merger offers no upside negotiation potential.(4) The Board now has the opportunity and the obligation not only to fully analyze the Revised Offer, but also to engage in serious negotiations with Qwest to elicit a bid that addresses any incremental concerns the Board may have. As noted above, subsequent to the announcement of the Proposed Merger, Qwest has favorably resolved the General Services Administration inquiry, eliminating any uncertainty with regard to the ability of a combined Qwest/MCI to serve government customers. The Board may now address matters relating to the total valued offered, the degree of cash consideration, and the ability of MCI shareholders to more meaningfully participate in the value that would be created by a Qwest/MCI combination while further limiting exposure to a lower Qwest stock price. The Board should now, consistent with its fiduciary duties, negotiate with Qwest, as well as with any other interested parties, for those terms and conditions as it prudently deems necessary to maximize MCI shareholder value. We therefore strongly urge the Board to avail itself of the mechanism provided for in the Proposed Merger agreement to engage in an immediate dialogue with Qwest with regard to its Revised Offer. Further, we urge the Board to provide Qwest with the same access to information afforded to Verizon, as further insight into the opportunity that MCI presents might facilitate a more favorable bid by Qwest. We reiterate that Elliott intends not to vote for the proposed merger with Verizon as currently structured. Further, Elliott reserves all rights with regard to the past and future conduct of the Board in connection with the potential combinations with Qwest and Verizon. Very truly yours, Elliott Associates, L.P. About Elliott Associates, L.P. Elliott Associates, L.P. and its sister fund, Elliott International, L.P. have more than $4.2 billion of capital under management as of January 1, 2005. Founded in 1977, Elliott Associates is one of the oldest hedge funds under continuous management. The Elliott funds' investors include large institutions, high-net-worth individuals and families, and employees of the firm. (1) The Revised Offer provides for $9.10 of cash per MCI share and 3.735 shares of Qwest stock per share of MCI. The component of the consideration comprised of Qwest stock is based on a Qwest stock price of $4.15 (see description of collar mechanism in footnote 3). (2) This is based on the Verizon offer of $6.00 of cash per MCI share and 0.4062 shares of Verizon per MCI share, using the February 24, 2005 Verizon closing price of $35.50. (3) In an attempt to limit the impact of volatility in Qwest stock between now and a closing of a Qwest/MCI transaction, the Initial Offer provides for a "collar", which will adjust the ratio of Qwest shares per MCI share such that the aggregate equity consideration per MCI share will remain constant at $15.50 (which is the 3.735 ratio multiplied by $4.15) so long as Qwest stock is between $3.74 (10% down from $4.15) and $4.57 (10% up from $4.15) during the 20 trading days (the "Pricing Period") prior to close. MCI shareholders bear the risk and enjoy the reward if Qwest stock trades outside that range during the Pricing Period. (4) While we were concerned with the $200 million break-up fee included in the Proposed Merger, particularly in light of the 19% premium that the Initial Offer represented versus the Proposed Merger, it should be noted that Qwest chose not to reduce its offer by this amount. Contrary to being disappointed with the Revised Offer, we view this as a clear signal that Qwest means to reopen a dialogue so that terms acceptable to MCI and its shareholders may be negotiated. Elliott Associates, L.P. CONTACT: Scott Tagliarino, +1-212-506-2999, or +1-917-922-2364 (cell),for Elliott Associates, L.P. [ Back To TMCnet.com's Homepage ]