MCI Inc. Tuesday promised to consider a sweetened $8 billion offer from Qwest Communications after the company argued before Wall Street investors that its bid is superior to the $6.7 billion offered by rival Verizon Communications.
MCI Chairman Nicholas Katzenbach, in a letter to Qwest Chairman and CEO Richard Notebaert, said MCI’s board would respond in “due course” to the sweetened Qwest bid made last week, just days after MCI spurned a previous Qwest offer in favor of the lower Verizon bid.
“I am hopeful that this letter will clear up any misconceptions and reassure you that the latest proposal from Qwest will receive the same extensive review as all previous proposals,” Katzenbach said in his letter.
The letter was made public shortly after Notebaert and other Qwest executives made a direct appeal to Wall Street investors and analysts Tuesday as a way of pressuring MCI to reconsider its bid.
Officials at the Denver-based Baby Bell argue that their plan will generate more than $10 billion in cost savings, largely through the elimination of up to 15,000 jobs — more than double the number Verizon plans to eliminate. Notebaert repeatedly expressed frustration that MCI has refused to discuss the offer.
“We have a superior bid, and even if you don’t think it’s superior, there’s clearly potential for a superior bid,” which usually means “you have something worth discussing,” he told a generally receptive audience of Qwest and MCI investors in New York.
Notebaert signaled that Qwest might be willing to raise its bid again but only if MCI agreed to meet. He declined to discuss whether Qwest might take its offer directly to MCI shareholders if no talks are held.
After Qwest submitted its revised bid, MCI said its board would evaluate the offer but stood by the $6.7 billion Verizon deal as a more promising and safer option for its shareholders.
Qwest’s latest bid made two enhancements to the cash and stock offer previously rejected by MCI: It would speed up the cash payoff to MCI investors, and provide some downside protection by offering to increase the amount of Qwest stock paid if the market value of those shares declines before the merger is completed.
The Qwest deal values MCI at $24.60 per share, consisting of $9.10 in cash and $15.50 worth of Qwest shares. Verizon is offering $6 in cash and stock currently worth $14.70, valuing MCI at $20.70 per share. MCI closed Tuesday on Nasdaq at $23.35 a share.
MCI and some investors have expressed concerns about Qwest’s weak financial condition and its uncertain business prospects — which make it unclear whether the Qwest shares used as payment will hold their value as well as Verizon’s stock down the road.
However, many attendees at Tuesday’s meeting downplayed those concerns.
Jeff Halpern, an analyst at Sanford C. Bernstein & Co., said the risk is not that substantial because Qwest’s current stock price is justified by its current financial performance.
Other attendees expressed surprise and annoyance that MCI has declined to show a willingness to speak with Qwest or at least explain its stance more publicly.
“I can only hope that MCI’s broad and management are listening to this presentation. I would be disappointed if they weren’t,” said Leon Cooperman, the chairman of Omega Advisors, which owns about 3 percent of MCI stock. Cooperman has been outspoken in his opposition to both the Verizon-MCI deal and the $16 billion acquisition of AT&T Corp. by SBC Communications announced in late January.
Antitrust concerns
Verizon reiterated its support for the MCI deal on Thursday, but declined to comment on whether it might consider paying more if MCI opened discussions with Qwest or tried to use its bid for bargaining leverage.
Qwest, the dominant local phone company for the Rocky Mountains and Pacific Northwest, also reiterated the company’s stance that by merging with a far smaller partner, a greater portion of any merger savings would belong to MCI shareholders.
The company also contends its deal likely would draw less antitrust concerns than would the acquisition of MCI by Verizon, the dominant local phone provider in the Northeast and Mid-Atlantic.
Notebaert stressed in an interview with The Associated Press that while both Qwest and MCI have national fiber-optic networks, and Verizon does not, the operations of Verizon and MCI overlap much more extensively in the key business markets in the eastern portion of the nation.
“Verizon today is larger than the combination of Qwest and MCI,” in the area of corporate services, Notebaert said, asserting that the Verizon-MCI deal would give Verizon too much market share and power.