MCI Takes New Verizon Bid
Updated from 10:55 a.m.
The
MCI
(MCIP)
battle took another twist Tuesday, as the long-distance telco accepted an improved offer from
Verizon
(VZ) - Get Report
.
The decision, announced Tuesday morning, represents another setback for Verizon's rival bidder,
Qwest
(Q)
. The struggling Denver telco started the MCI bidding war with an $8 billion offer last month and has since sweetened its terms several times. But MCI has rejected the company's overtures throughout in spite of extensive discussions between the sides.
MCI valued the improved Verizon bid at $7.6 billion, or $23.10 a share, not including MCI's recently paid 40-cent quarterly dividend. That compares with the pending $25.60-a-share bid from Qwest. Both Qwest and Verizon have habitually valued their cash-and-stock bids including dividends that MCI shareholders were scheduled to get anyway.
The latest development means that Verizon has once again underbid Qwest, and that MCI's board has once again embraced the big telco in the face of questions about Qwest's financial strength and the staying power of its single-digit stock.
"Verizon believes the revised terms provide MCI shareholders with substantial additional value," Verizon said in a midmorning press release.
Verizon said it will pay $8.35 a share in cash and $14.75 a share in stock for MCI, with the deal including a so-called collar that increases the number of shares issued if Verizon stock falls below a certain level.
The company had previously bid $20.75 a share, or about $6.7 billion, for Ashburn, Va.-based MCI.
Qwest said it would "assess" the situation in the face of its latest snub. But the company's finance chief, Oren Shaffer, struck a more combative note Tuesday morning at the Banc of America Securities Media and Telecom conference in New York.
"This is a positive move," Shaffer told investors and analysts in a breakout session when told of the news. "It's something that should have happened a month ago."
Shaffer told investors that Qwest remains more in tune with the MCI shareholder base and that "now we'll start to see where the battle lines are drawn." Shaffer emphasized that Verizon's new bid is still inferior to Qwest's standing offer, and that many MCI shareholders aren't drawn to the prospect of owning a tiny piece of Verizon.
"The greatest advantage Qwest offers is the equity ride on the NewCo's shares," he said.
Qwest said earlier this month it would pay $10.50 a share in cash and $15.50 a share in stock for a deal with MCI worth $8.5 billion. MCI had said it would review the proposal and make a decision on March 28. Then yesterday, growing impatient, Qwest set an April 5 deadline for MCI's response.
Shaffer also noted reports that the revised Verizon deal, like the improved Qwest bid, includes a so-called collar that protects MCI shareholders from a decline in Verizon shares. Shaffer crowed that Verizon stock has been falling since the bidding war erupted last month, though Qwest shares have also been on the wane.
Verizon's sweetened bid is in line with the recent trading price of MCI shares. MCI shares were up 81 cents to $23.75, while Verizon jumped 60 cents to $35.32 and Qwest rose a dime to $3.85.