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Qwest moves closer to winning MCI bid

MCI Inc. on Saturday embraced a $9.75 billion takeover bid from Qwest Communications Inc., finally succumbing to pressure to scrap its lower-priced deal with Verizon Communications Inc.
/ Source: The Associated Press

MCI Inc. on Saturday embraced a $9.75 billion takeover bid from Qwest Communications Inc., finally succumbing to pressure to scrap its lower-priced deal with Verizon Communications Inc.

Verizon now has five business days to respond with an improved proposal or walk away the loser after a nearly three-month bidding war.

MCI said its board of directors, after shunning three prior bids from Qwest, had determined that the latest offer was superior to the long-distance phone company's $7.5 billion agreement with Verizon.

The announcement does not immediately swing the MCI board's recommendation away from the lower-priced Verizon deal. Under the terms of that agreement, such a change cannot occur until after the five-day waiting period.

Verizon's options include boosting its offer a second time or walking away with a sizeable breakup fee.

Alternatively, the New York-based phone company could call for an immediate vote on its deal by MCI shareholders, hopeful that enough are fearful of Qwest's shaky finances and strategic outlook.

Verizon, one of the nation's two biggest local and wireless phone companies, did not immediately comment on the MCI announcement.

Qwest, the local phone company in 14 mostly western states, issued a statement saying it was "gratified" by the news.

However, Denver-based Qwest also sounded a note of distrust after being treated as a second-class suitor for so long, its prior offers used chiefly a lever for extracting more money from Verizon.

"We expect MCI to build upon its declaration of superiority with specific acts of support, including expeditiously seeking regulatory approvals of a transaction that it considers superior and in the best interests of its shareowners," the statement said.

Should Verizon choose to pay more, it wouldn't necessarily need to match the $30 a share which Qwest offered Thursday.

MCI's board has twice accepted lower-priced deals with Verizon, so it's entirely likely that Verizon could prevail again with a lower bid. The current Verizon deal, for example, values MCI at $23.10 per share, or $4.40 less than Qwest's previous offer of $27.50.

The MCI statement, which came several hours before a deadline set by Qwest in submitting its new offer on Thursday, said Qwest's proposal gives the board until May 3 to change its recommendation away from Verizon.

Several major MCI shareholders agreed to help finance the latest Qwest bid, a move that intensified pressure on MCI's board of directors to switch merger partners.

Verizon and Qwest have been battling for MCI since late January, when their mutual rival SBC Communications Inc. reached a deal to acquire long-distance carrier AT&T Corp. for $16 billion.

Based in Ashburn, Va., MCI 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.

Notably, although AT&T is in far better financial health than MCI, the bidding has placed a much higher relative valuation on MCI.

MCI directors have 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.

Qwest's $30-per-share offer consists of $14 in Qwest stock and $16 in cash -- an increase of $2.50 in cash compared with its prior offer.

The Verizon deal valued MCI at $23.10 per share, though two weeks ago it agreed to pay nearly $26 a share for a 13.4 percent stake in MCI from Mexican billionaire Carlos Slim Helu. That gambit fueled speculation that Verizon would offer at least that much for the rest of MCI's stock.