Qwest Says Heads Will Roll - TheStreet

Qwest's (Q) latest ploy to fire up its bid for MCI (MCIP) is to promise mass firings.

The struggling Denver telco, twice rebuffed by long-distance carrier MCI despite apparently superior merger offers, said Tuesday that it would fire 15,000 people if the deal took place. That's twice as many workers as


(VZ) - Get Report

would cashier under its proposed merger.

Of course, Qwest's job-slashing spree would come only if the company can somehow persuade the MCI board to talk to it, let alone accept its offer. News on that front wasn't good, though. MCI still hasn't replied to Qwest, CEO Dick Notebaert said in a meeting with analysts and investors Tuesday morning.

Qwest has twice bid $8 billion in cash and stock for Ashburn, Va.-based MCI. MCI hasn't formally responded to any Qwest offer and last month instead accepted a $6.8 billion merger with Verizon. Qwest has since sought to make its case through the press, sending letters to MCI's board and writing op-ed pieces in major newspapers.

The campaign seems to be having little effect so far, though. Speaking at the briefing Tuesday, Notebaert said MCI has made "no response" to the company's most recent offer.

In an attempt to stop the proposed merger of MCI and Verizon, Qwest

modified its original $8 billion offer Thursday by attaching a collar or fixed price to the stock portion of its bid and accelerating its cash payouts to shareholders.

Qwest's proposal is roughly 20% higher than the Verizon offer that was accepted last month by MCI. The deal between MCI and the New York phone giant is valued at between $5.3 billion and $6.8 billion, depending on how you count the dividends Verizon would pay out of MCI's kitty.

Notebaert stressed to investors Tuesday that a hookup with MCI would offer greater cost savings and complementary business operations. Qwest says the combined company would cut 15,000 employees, about twice as many as proposed by Verizon.

Analysts at the conference Tuesday pointed out that Qwest's proposal is heavy on cuts and deleveraging and a little light on revenue growth opportunities. Notebaert said there are no sales growth forecasts included in the projections.

Observers and analysts say the MCI board likely took the original Verizon offer because it aligned the company with a much stronger player in the industry. And even though Qwest came up with a somewhat higher bid, its strength as a company is still in question.

Qwest operates in the red and already has $16.7 billion in debt, and a mere $1.8 billion in cash. To swing this deal, the company will likely have to take on even more debt. Though observers say the company has arranged suitable backing from bankers and investors, the stakes are high.

By Qwest fixing the share price with a collar, MCI is more protected from a drop in Qwest's stock value, though Qwest shares dropped sharply Friday as Wall Street registered its disappointment with the revised terms. Still, observers see the enhanced dividend payment, which would come from MCI's piggy bank, as an enticement for shareholders to approve the deal.

The company's revised bid calls for total dividends of $6 per share paid by MCI, $3.10 in cash per share from Qwest and $15.50 in stock. The previous bid called for the continuation of $1.60 per share in annual dividends, $7.50 in cash, and 3.735 Qwest shares for each MCI share.

MCI said last week that it had received the offer and promised to review it thoroughly. In a statement Thursday, Verizon said it "has a signed agreement with MCI and a proven track record of completing transactions that create value for shareholders, customers and employees."

MCI shares rose 15 cents to $22.90 early Tuesday, and Qwest added 15 cents to $4.05.