The board of MCI Inc. late Tuesday rejected an $8.9 billion buyout proposal from Qwest Communications, opting instead to stick with a $7.5 billion offer from Verizon Communications Inc., a Qwest spokesman said.
Qwest Communications International Inc., which has made three bids for MCI, plans to evaluate the situation before deciding its next move, Qwest spokesman Steve Hammack said Tuesday night.
“We are weighing our options, and shareholders will dictate the next steps in the process,” Hammack said. “MCI’s board of directors has chosen to reject what we believe is a superior offer to acquire MCI.”
MCI spokesman Peter Lucht declined comment. Verizon spokesman Peter Thonis read a statement early Wednesday that said the company was “pleased.”
“We are looking forward to working with MCI shareholders to get the deal done promptly,” the statement said.
Denver-based Qwest issued a midnight Tuesday deadline to MCI last week when it raised its bid by nearly $500 million to $8.9 billion, or about 20 percent more than the sweetened Verizon bid that MCI accepted just days earlier.
The company reiterated its deadline Tuesday, a day after Verizon issued an ultimatum saying it would walk away from the deal and further negotiations should MCI declare the Qwest offer superior.
Verizon and Qwest, two of the nation’s biggest telephone companies, have been battling for about two months over Ashburn, Va.-based MCI, which operates a national fiber-optic network serving a lucrative roster of government and corporate clients.
MCI’s board has been worried about Qwest’s financial troubles, including a $17 billion debt load, and the long-term value of the Qwest shares that will be used as partial payment for the buyout. As a result, MCI has twice accepted lower bids from Verizon rather than agreeing to merge with Qwest.
Qwest’s most recent offer of cash and stock is worth $27.50 a share. Verizon’s latest stock-and-cash bid values MCI at $23.10 per share, up from $20.75 under the original agreement those companies reached in mid-February.
The Wall Street Journal reported on its Web site that MCI officials had asked Qwest CEO Richard C. Notebaert to raise his offer from $27.50 to $30 per share, but that he had declined. The report did not cite sources.
In recent days, MCI officials have requested certain assurances and asked whether Qwest’s latest proposal was its best and final offer. Qwest said it rejected an MCI request to boost the value of executive retention packages and to relieve MCI of its obligations to comply with a section of the Sarbanes-Oxley Act that deals with internal accounting controls.
Earlier Tuesday, MCI spokesman Peter Lucht said Notebaert mischaracterized both issues.
“This would be broad-based retention program not just for executives,” Lucht said. “That is standard practice in mergers.”
He also said MCI is in compliance with the act, passed in 2002 in the wake of corporate scandals.
Both Qwest and Verizon have hired proxy consulting firms amid speculation that Qwest may seek a direct vote by MCI shareholders if it is rejected by MCI’s board.
Denver-based Qwest, the local phone company for 14 mostly Western states, has argued that its merger proposal would be less harmful in the competitive environment and would gain regulatory approval more quickly than a Verizon-MCI combination.
Based in New York, Verizon is the dominant phone company in the eastern part of the country.