updated 4/24/2005 3:53:50 PM ET 2005-04-24T19:53:50

Verizon is widely expected to boost its bid for MCI Inc. again now that the long-distance phone company has embraced a rival $9.75 billion bid from Qwest, though it remains unlikely Verizon will need to pay that much to win MCI back.

Analysts say MCI’s board had little choice but to declare Qwest’s latest offer superior by Saturday’s deadline, given its dubious legal grounds for sticking with a Verizon deal worth just $7.5 billion.

But that means, to Qwest’s dismay at being treated as a second-rate suitor, that its “best and final” offer will amount to just another bargaining chip for MCI’s board — unless Verizon unexpectedly surrenders after a three-month bidding war.

Five-day deadline
Starting Monday, Verizon has five days to respond with an improved offer for MCI or walk away with a $240 million breakup fee. It also has the right to ignore that deadline and force MCI investors to vote on its existing deal, hopeful that enough fear Qwest’s shaky finances and strategic outlook.

MCI’s board has repeatedly expressed concern about Qwest’s $17 billion debt load and the long-term value of the Qwest shares MCI investors would receive as partial payment. The MCI board also has questioned whether Qwest can meet its forecast of nearly $3 billion a year in cost savings from the proposed merger.

MCI’s board has twice accepted lower-priced deals with Verizon, so Verizon could prevail again with a lower bid.

The board can’t officially swing its recommendation from Verizon Communications Inc. to Qwest Communications International Inc. until the five days elapse.

Paying too much?
Regardless of who wins, analysts are questioning whether the bidders are at risk of overpaying for MCI’s struggling business.

Qwest’s $30 offer values MCI about 50 percent higher than when the bidding began.

And on the basis of profit forecasts, it values MCI’s prospective earnings as much as 50 percent higher than AT&T Corp., whose $16 billion deal to be acquired by SBC Communications Inc. set off the scramble for MCI.

“We don’t believe the risks associated with acquiring and integrating MCI are worth the prices being offered by either Qwest or Verizon,” said Ben Silverman, an industry analyst for the investment newsletter FindProfit.com. “Thus, the only winners in this equation stand to be short-term MCI shareholders.”

New York-based Verizon is one of the nation’s two biggest local and wireless phone companies. Denver-based Qwest is the local service provider in 14 mostly Western states.

MCI, based in Ashburn, Va., 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.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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