MCI Inc. may meet with Qwest Communications International Inc. to discuss the suitor’s revised takeover bid to assure shareholders it has explored all options and tried to clinch the best offer, sources familiar with the situation said on Monday.
MCI has agreed to be acquired by Verizon Communications Inc. for $6.7 billion, but spurned suitor Qwest has been dogged in its pursuit of the No. 2 U.S. long-distance telephone and data services company.
Qwest last week submitted a revised takeover bid of $7.7 billion, which was equal in monetary value to its original, failed proposal. But the new bid added protection against a drop in Qwest’s stock price and offered a faster cash payout.
Although Qwest tweaked its offer only slightly, analysts said it taunted MCI with the possibility that it could raise its bid if it got access to the long-distance company’s proprietary financial records.
The Wall Street Journal, citing people familiar with the situation, reported on Monday that Qwest would be willing to revise its bid again. Qwest would need to add more cash to its cash-and-stock bid before MCI would consider it seriously, analysts said.
MCI has said it would review Qwest’s latest bid, but it told analysts and investors on Friday that the Verizon deal made the most sense despite the lower price tag. MCI Chief Executive Michael Capellas vowed the company would “do our utmost” to complete the Verizon deal quickly.
Ashburn, Virginia-based MCI chose Verizon, in part, for its solid balance sheet and strong growth prospects given its mix of wireless and local businesses. Qwest, meanwhile, is saddled with $17 billion in debt.
Some large MCI shareholders, such as hedge fund Elliott Associates L.P., have balked at the lower offer from Verizon and urged the long-distance company to open talks with Qwest.
To fulfill its fiduciary responsibilities and shield itself from a shareholder backlash, MCI may choose to sit down with Qwest, sources said. A final decision has not yet been made, and MCI still may reject Qwest’s offer outright without holding discussions, sources said.
“In this environment, every board wants to protect itself and make sure it’s doing everything perfectly. It might be prudent to sit down and say ’We’ll meet with you, but don’t waste our time”’ said one telecommunications investment banker, who declined to be named.
Qwest, the smallest of the Baby Bell local telephone companies, said last week it already had been talking to MCI for 10 months.
Under the contract with Verizon, MCI must take certain steps as it weighs its next move.
MCI’s board can talk with Qwest only if it decides the Denver-based company’s latest overture could be reasonably expected to lead to a superior takeover offer. At that point, MCI could open its financial records to Qwest.
Verizon would have five days to match any top offer made by Qwest. If MCI choses Qwest, it would have to pay Verizon $200 million to scrap their merger agreement.
“Even though Qwest’s odds are better than we initially thought, we continue to believe that Verizon is the most likely buyer of MCI,” Goldman Sachs analyst Daniel Henriques said in a research note.
MCI and Verizon declined to comment. Qwest, which is hosting a meeting with analysts on Tuesday, said it has met all legal conditions to hold “substantive talks” with MCI on its latest offer.