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Qwest Closer to Winning MCI Deal

Posted on: Monday, 25 April 2005, 15:00 CDT

NEW YORK - MCI embraced a $9.75 billion takeover bid from Qwest on Saturday, finally succumbing to pressure to scrap its lower- priced deal with Verizon.

Verizon Communications Inc. now has five business days to respond with an improved proposal or walk away the loser after a nearly three-month bidding war.

MCI Inc. said its board of directors, after shunning three prior bids from Qwest Communications Inc., had determined that the latest offer was superior to the long-distance phone company's $7.5 billion agreement with Verizon.

Verizon's options include boosting its offer a second time or walking away with a sizable breakup fee.

Alternatively, the New York-based phone company could call for an immediate vote on its deal by MCI shareholders, hoping that enough are fearful of Qwest's shaky finances and strategic outlook.

Verizon and Qwest have been battling for MCI since late January, when their mutual rival SBC Communications Inc. reached a deal to acquire long-distance carrier AT&T Corp. for $16 billion. Based in Ashburn, Va., MCI has been hit hard by competition and a bankruptcy brought on by the WorldCom scandal, but still possesses a valuable customer base and national fiber-optic network.

Although AT&T is in far better financial health than MCI, the bidding has placed a much higher relative valuation on MCI.

Verizon, one of the nation's two biggest local and wireless phone companies, said in a statement Saturday it would consider all its options. It questioned whether Qwest's higher offer would be "sufficient compensation for the increased risks associated with completing the transaction and executing the business plan."

Qwest, the local phone company in 14 mostly western states, is burdened by a high debt load. It issued a statement Saturday saying it was "gratified" by the news from MCI.

However, Denver-based Qwest also sounded a note of distrust after being treated as a second-class suitor for so long, its prior offers used chiefly a lever for extracting more money from Verizon.

"We expect MCI to build upon its declaration of superiority with specific acts of support, including expeditiously seeking regulatory approvals of a transaction that it considers superior and in the best interests of its shareowners," the statement said.

Source: Advocate; Baton Rouge, La.

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