Jack Dempsey  /  AP file
The Qwest building towers over the MCI offices in downtown Denver in a photo taken earlier this month. Qwest's board is scheduled to meet Wednesday to discuss whether the company should raise its offer for MCI.
updated 3/30/2005 8:41:14 AM ET 2005-03-30T13:41:14

Although its multibillion-dollar offer for MCI Inc. has been rejected a second time, Qwest Communications International Inc. isn't likely to be content to simply stay home in the Rockies.

The Qwest board is scheduled to meet Wednesday morning to "consider its options in the continued pursuit of MCI," a source close to the negotiations who requested anonymity said late Tuesday.

The Denver-based company, with local phone service in 14 Midwestern and Western states and a nationwide fiber-optics network, will probably submit a sweetened offer to MCI's board or perhaps try a hostile takeover, several analysts said Tuesday.

The six-week, very public bidding war for MCI took another twist Tuesday when the Virginia-based long-distance carrier accepted a $7.64 billion takeover proposal from Verizon Communications Inc. It was nearly $1 billion less than the most recent Qwest bid.

Qwest declined comment, but chief financial officer Oren Shaffer provided some hints of what's to come. Speaking to analysts on Tuesday before MCI's decision was announced, Shaffer said that Qwest would consult with MCI stockholders if its bid was rejected.

"Right now, we think that the shareholders' interests and our interests are aligned," he said.

MCI's board has been concerned about partnering with Qwest, which is financially weaker than Verizon, the dominant local phone company in the Northeast and a top player in the cellular phone industry. Qwest is weighed down by $17 billion in debt, lacks a wireless division and faces growing competition from cable and high-speed data companies.

Still, analysts believe Qwest will press its bid for MCI.

"We do not expect that Qwest will completely abandon its pursuit of MCI and is likely to revise _ increase _ its offer and officially launch a hostile offer for MCI," Lehman Brothers analysts Andrew Whittaker and Blake Bath wrote in a research note published Tuesday.

Banc of America Securities analyst David Barden believes Qwest will take its bid straight to MCI shareholders.

"We expect any further bid from Qwest to emerge from a consultative process with MCI stockholders that still see a Qwest bid as the best option for maximizing their stock value," he wrote.

Analyst Donna Jaegers of Janco Partners Inc. said the process has been time-consuming for Qwest executives who should be focused on operations.

"I'm hoping Qwest gets the message and doesn't up its bid any further," she said.

Qwest said in a statement its proposal creates superior shareholder value. "We are going to assess the situation and determine what is in the best interests of shareowners, customers and employees," the company said.

A spokesman declined additional comment, but Shaffer said the only reason Qwest has pushed this much is because of MCI shareholders who believed the Qwest offer was better.

"The idea that maximization of value is a nice easy thing to understand and it's clear our views are aligned in that matter," he told analysts.

Qwest sees an MCI acquisition as a way to boost its bottom line. Analysts have said the combined companies would increase Qwest's free cash flow, allowing it to pay down some of its debt.

After MCI rebuffed its initial bid in mid-February, Qwest led by chief executive officer Richard Notebaert continued its dogged pursuit, sweetening its offer several times as it was bolstered by MCI shareholder opposition to the Verizon bid. MCI reopened talks with Qwest, but ultimately chose Verizon.

In all, Qwest has raised its bid by $500 million and Verizon's stock has declined since the tug-of-war began. Notebaert and Verizon CEO Ivan Seidenberg have also waged the battle publicly through letters, at times sharply worded, to the MCI board and a flurry of news releases.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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