Tech Watch | InfoWorld Staff » Qwest pursues MCI while Verizon stays in the picture

February 25, 2005 | Comments: (0)

Qwest pursues MCI while Verizon stays in the picture

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Qwest Communications International is continuing its dogged attempt to acquire MCI, but some experts say Verizon Communications remains the best bet for MCI.

"MCI obviously has a strong interest in surviving and Verizon has a much stronger franchise than Qwest," said Bryan Van Dussen, a Yankee Group telecommunications analyst.

Nonetheless, Qwest renewed a bold challenge for MCI this week. In an open letter to MCI's board of directors, Qwest's Chairman and Chief Executive Officer, Richard Notebaert, said Qwest's new offer would continue to pay $24.60 per share in cash and stock to MCI stockholders.

The deal, worth an estimated $8 billion, is the same price Qwest offered on Feb. 11. But the new bid guarantees that purchase price, unlike a rival bid from Verizon, and it would allow a faster payout to MCI stockholders than Qwest's previous bid, IDG News Service reported.

MCI executives on Feb. 14 accepted a deal from Verizon worth about $6.7 bil-lion, arguing that the larger and more profitable Verizon would be the best long-term fit for MCI. Stockholders would still have to approve that deal, the news service reported.

Qwest's new letter to the MCI board guaranteed the $24.60 as a locked-in price, called a "collar," for MCI stockholders, instead of a bid based on the fluctuating value of Qwest's stock. Qwest's offer of $15.50 worth of its stock has not changed, but its new bid would give MCI stockholders $6 in cash per share at approval of the agreement and $3.10 at closing, instead of the $1.60 at approval and $7.50 at closing.

Notebaert's letter was viewed by many as an attempt to entice MCI stockholders.

"MCI has failed to provide meaningful guidance or direction in response to the Qwest proposal," Notebaert said in the letter. "Consequently, with only press reports and lawsuits as sources of information for how the MCI Board evaluated the components of our proposal, Qwest tenders this revised proposal, the terms of which are even more compelling for your stockholders."

"It is important to emphasize that a Qwest/MCI merger would create an excit-ing and important new telecommunications company, of which MCI would become a meaningful part," Notebaert said. "The merger of Qwest and MCI would create a company with a strong market position, demonstrated commitment to superior cus-tomer service and innovative products and services, and the potential for sig-nificant value creation through cost synergies. The combination would create the industry leader in IP, with the most advanced IP-based network and compelling suite of IP based services."

MCI Chief Executive Michael Capellas said during a conference call Friday MCI has a duty to examine the Qwest offer although company executives have already accepted the Verizon offer.

"We will do our utmost to complete the (Verizon) transaction in a timely and efficient manner," Capellas said. "The board recognizes and acknowledges the in-put from our shareholders and remains committed to diligence and fulfilling its fiduciary duties. We also acknowledge receipt of Qwest’s proposal and we remain respectful of all parties. "

Qwest and Verizon are locked in a battle for MCI after rival regional Bell company SBC Communications announced Jan. 31 it plans to acquire AT&T in a $16 billion deal. MCI and AT&T have both focused on enterprise customers, long-distance service and international data networks, while Qwest, Verizon and SBC have traditionally provided local phone service, IDG News Service reported.

Ron Cowles, a telecommunications analyst for Gartner, advised enterprise IT managers to be cautious for the time being in dealing with both Qwest and MCI.

"Our advice to enterprises is that if they are in contract talks with MCI, they should put a lot of conditions in so they can exit if things go south," Cowles said. "Put in a lot of service quality conditions. If enterprises are not in negotiations, hold tight until things become clear."

Despite the current uncertainty, the current consolidation may ultimately pay off in better enterprise services being offered, said The Yankee Group's Van Dussen.

"There is an argument that this may create healthy companies that can bring out more innovative services," he said. "One of the thing I'm looking for is companies rolling out more services like Ethernet services, Ethernet-based WAN services and get rid of old frame relay services."

Posted by Jack McCarthy on February 25, 2005 03:10 PM

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