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Verizon Reaches Deal to Buy VA.-Based Mci ; Agreement Scuttles Bid By Qwest, Would Lead to 7,000 Job Cuts

Posted on: Friday, 18 February 2005, 03:00 CST

Verizon Communications Inc. is acquiring MCI Inc. for $6.75 billion, a swift response to the acquisition of AT&T Corp. by SBC Communications Inc. and the third big telephone-industry merger in two months.

The agreement announced yesterday, scuttling a competing bid for MCI by Qwest Communications International Inc., would result in about 7,000 job cuts from the combined Verizon-MCI work force of about 250,000 employees.

The purchase price was about a half-billion dollars below what Qwest offered for MCI, which recently changed its name from WorldCom Inc. after emerging from bankruptcy and a huge financial fraud. The company is now based in Ashburn, Va.

Verizon officials would not comment on how many jobs would be cut in Virginia.

"It's too early to speculate on work-force issues. .*.*. These types of issues will be addressed as we move through the planning process prior to the closure of the deal, as legally permissible," Verizon spokesman Harry Mitchell said.

Verizon employs about 11,200 workers in Virginia, and MCI has about 3,600 in the state.

A court ruling nearly a year ago and subsequent decisions by the Federal Communications Commission were key catalysts for yesterday's deal, as well as last month's $16 billion takeover of AT&T Corp. by SBC Communications Inc.

Those findings effectively forced long-distance providers on the auction block by boosting their operating costs, compounding a multiyear slide in customers and revenues.

While consumer advocates expressed worry, it's not clear that the loss of AT&T and MCI as rivals would free their acquirers to boost prices for long-distance phone calls. That's because many consumers and businesses already are taking advantage of money-saving alternatives -- especially cell phones and Internet-based phone services from cable-TV companies and others.

"If you're willing to change the way you purchase services, there's a lot of competition out there" beyond the local Bells, said David Willis, an industry analyst for the Meta Group Inc. in Stamford, Conn., who noted that AT&T and MCI already had stopped competing for new residential customers.

If all approved, recent telecom mergers, including December's deal by Sprint Corp. to acquire Nextel Communications Inc. for $35 billion, would reduce the industry to four dominant telephone companies: Verizon, SBC, BellSouth Corp. and Sprint Nextel.

It also leaves Qwest Communications International Inc., a Denver- based Baby Bell, isolated in a highly competitive market.

Verizon, the country's largest regional phone company, would not say what would become of the MCI brand.

MCI was acquired in 1998 by Bernard Ebbers' WorldCom Inc., which after a financial scandal and a trip through bankruptcy-court reorganization, re-emerged with the MCI name in 2003.

For SBC and Verizon, the consumer business is a minor attraction in their purchases. Instead, they are counting on the corporate customers and national network operations that MCI and New York- based AT&T bring.

The merger would jump-start Verizon's efforts to become a national service provider for large companies thanks to MCI's base of 1 million business customers and an extensive fiber-optic network and local infrastructure outside of Verizon's largely Northeastern power base.

Under the agreement, Verizon would pay stock currently worth $4.779 billion and $488 million in cash for MCI's shares. In addition, MCI shareholders would be paid dividends worth $1.463 billion.

Verizon is also assuming MCI's debt, expected to total $4 billion at closing. The companies estimate that merger expenses would total up to $3.5 billion over three years once the deal closes, but that cost-cutting from redundant operations would yield $1 billion per year in savings starting in the third year.

TELECOM MERGERS

Some recent mergers involving telecommunications companies:

*Verizon Communications Inc. agrees to buy MCI Inc., - the nation's second-largest long-distance provider, for $6.75 billion in cash and stock. The deal could result in about 7,000 job cuts from the combined Verizon-MCI work force of about 250,000 employees.

*SBC Communications Inc. agrees to acquire former parent AT&T Corp. in a $16 billion deal, mostly in stock, that would create one of the world's largest telecom companies. Announced Jan. 31. Expected elimination of 13,000 jobs, many through attrition, on top of existing plans at the two companies to eliminate at least 12,000 jobs before the merger is finalized.

*Alltel Corp., the sixth-biggest U.S. cellular carrier, agrees to buy Western Wireless Corp., - a Northwest regional carrier that owns the Cellular One brand, for about $4.4 billion in cash and stock. Announced Jan. 10. Alltel CEO Scott Ford said "probably much less than 10 percent" of Western Wireless' 4,000 workers would be subject to job cuts. Such decisions expected after deal closes.

*Sprint Corp. agrees to acquire Nextel Communications Inc. in a $35 billion deal, mostly in stock, combining the nation's third- and fifth-largest cell-phone carriers. Announced Dec. 15. Officials will not discuss layoff prospects.

*Cingular Wireless LLC acquires AT&T Wireless Services Inc. for $41 billion in cash to form nation's largest cell-phone company. Announced last February and completed Oct. 26. Cingular plans to cut about 10 percent of its 68,000 jobs.

Source: Richmond Times - Dispatch

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