Verizon Communications Inc. said it has agreed to purchase approximately 43.4 million shares of MCI Inc. from MCI’s largest single shareholder, Carlos Slim Helu, for $25.72 per share in cash. Industry analysts noted the sale equals a 13.4-percent stake in MCI for $1.1 billion.
The agreement also calls for Verizon, which is in the midst of attempting to acquire MCI, to pay an adjustment at the end of one year in an amount per MCI share equal to .7241 times the amount by which the price of Verizon’s common stock exceeds $35.52 per share. MCI’s shares were trading up slightly early on the news at $25.91 per share, while Verizon’s stock was flat at $35.07 per share.
“While this was an opportunity for us to purchase a block of shares under unique circumstances and is an important step forward in our acquisition of MCI, we will continue to assess the situation as we move toward a vote by the MCI shareholders,” said Ivan Seidenberg, Verizon chairman and chief executive officer.
The deal garnered strong reaction from other MCI shareholders. Legg Mason Capital Management CEO Bill Miller fired off a letter to MCI CEO Michael Capellas insisting that all MCI shareholders be privy to the terms of Verizon’s stock purchase. Verizon’s current offer to acquire MCI, which has the support of MCI’s board, is valued at $23.50 per share or a total price of $7.5 billion.
“As I indicated in my letter to the board last week, events had made Verizon’s $23.50 offer moot; this subsequent development confirms that,” Miller wrote. “There can be no reason for the board to support an offer to MCI owners that is substantially inferior to what Verizon has just agreed to pay for a non-control block of stock.”
Miller noted that in lieu of Verizon’s stock purchase price, the present value of MCI’s stock was in excess of $27 per share.
“For the board to continue to insist that the prior offer of $23.50 is sufficient and fair would be unconscionable,” Miller added. “If presented with any offer from Verizon that is less than the present value of what they are paying Mr. Slim, we will vote against it.”
Verizon’s stock acquisition also drew comment from Qwest Communications International Inc., which has so far seen its $27.50 per share or $8.9 billion offer to acquire MCI rebuffed by MCI’s board.
“By entering into its deal with Mr. Slim, Verizon has both created two classes of shareholders and called into question the MCI board’s previous determination that Verizon’s lower offer to the other MCI shareholders was superior and fair,” Qwest said in a statement. “We believe Qwest has a superior proposal for all shareholders.”
