MCI Inc.’s board of directors elected to accept Verizon Communications Inc.’s increased bid for the business, again rejecting Qwest Communications International Inc.’s larger takeover offer.
Verizon increased its bid for MCI by almost $1 billion and included a clause in the contract to protect MCI investors against Verizon’s falling stock price. MCI in February agreed to a $6.75 billion bid from Verizon, but Qwest sought to snatch MCI away from Verizon with a $8.45 billion bid for the carrier. Qwest said it would consider its options following Verizon’s increased bid.
“We respect the right of Verizon to change the composition and value of their bid, but we still believe our proposal creates superior value for shareowners,” Qwest said in a statement. The carrier’s takeover offer ends April 5. “We are going to assess the situation and determine what is in the best interests of shareowners, customers and employees.”
Verizon’s new $7.6 billion takeover bid is still less than that from Qwest. However, MCI again pointed to Verizon’s financial stability and its wireless assets as reasons for accepting the carrier’s offer.
“In making its determination, MCI’s board considered the following factors, among others: the changing competitive nature of the telecommunications industry; increasing need for scale and comprehensive wireless capabilities; access economics; the level and achievability of synergies; strength of capital structure; the ongoing ability to sustain network service quality and invest in new capabilities; and ensuring ongoing customer confidence among MCI’s large enterprise and government customers,” MCI said.
“Verizon is in much better financial and operational shape to take on a company of MCI’s size and do what needs to be done to turn it around, without sinking itself in the process,” said Jan Dawson, a principal analyst with research and consulting firm Ovum. “Qwest-MCI would have been a disaster. Verizon’s higher offer allows MCI to appease shareholders while doing what always made the most sense.”
Under Verizon’s revised proposal, the carrier is offering $23.50 for each MCI share, an increase of $2.75 per share or $900 million total. Further, Verizon included a “downside protection mechanism” that assures that the value of its stock component will be no less than $14.75 per share. Verizon’s previous bid for MCI suffered from Verizon’s falling stock price. However, Verizon also increased its termination fee to $240 million from $200 million in the event the deal falls through.
“MCI’s board has been closely and carefully evaluating all of the recent developments,” said Nicholas deB. Katzenbach, MCI’s chairman of the board. “We believe Verizon’s substantial increase in its offer, the strength of its competitive position and the financial certainty at close make this offer compelling to our shareholders, customers and employees.”
MCI’s stock was up around 3.5 percent after the news to about $23.75 per share. Verizon’s stock was up slightly to $35.41 per share, while Qwest’s stock was up around 2.4 percent to $3.84 per share.
