Qwest Ups the Ante in Bid to Take Over MCI
Qwest made a higher offer for MCI on Thurs., changing its bid to the equivalent to $8.45 billion. MCI said it would consider the new offer and provide a response by March 28.
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“We are pleased to present an improved proposal to acquire MCI,” Qwest said in a letter to MCI, which it filed at the SEC. “This improved proposal is over 25% higher than Verizon’s offer, representing over $1.7 billion in additional value payable to MCI stockholders.”
The letter pointed to the vocal opposition of large MCI shareholders to the Verizon offer. “In the past 2 weeks, many MCI stockholders have clearly expressed their preference for the Qwest offer through words and action,” Qwest said. “MCI stockholders have periodically traded its share price up to within 5% of our proposal and have thereby confirmed the value of our equity and validated our proposal as value creative.”
Qwest CEO Richard Notebaert told CNBC on Thurs. that the deal continues to make sense for both companies. “When you put the 2 companies together you look at the opportunity to improve your cash flows, the opportunity to provide a broader array of services in the marketplace and to grow,” he said. “In our business, in our sector, that is what we are all looking for and this does that.”
Notebaert said he wasn’t unduly concerned about adding to the $17.3 billion in debt the company already carries. “That’s a rather narrow look,” he said. “What’s important is not what Qwest is today, but what Qwest-MCI is tomorrow. In that case you start out in year one with a ratio of EBITDA to debt of just over 2%. You quickly in year 3 take it down to investment of about 0.8 [%]. You actually by putting the 2 companies together end up with better EBITDA to debt ratios.”
Notebaert also said his company’s future wasn’t tied to whether Qwest won the contest for MCI. “There’s always a plan B,” he said. “It’s just that you look at the one that creates the most value for the share owner and for the customer… This is plan A.”
Regulators and consumers should welcome the merger, he said. “This creates more competition and this creates more innovation,” he said. “If the Verizon deal goes through with MCI, SBC with AT&T, you will have such a concentration of market power. We're back to the days of duopoly. You really start to wonder what the last 21 years were about since we broke up the Bell system in 1984.” Notebaert said he hoped the MCI board would evaluate the latest bid and recognize it as “a superior offer very quickly.”
Standard & Poor’s said it viewed the Qwest offer as “an effort to break up the agreed upon deal by Verizon” announced in Feb. “If MCI accepts Qwest’s higher offer, Verizon will be granted an opportunity to respond,” S&P said. “We believe that unlike Verizon, Qwest lacks the cash flow generation to be bidding against itself. But we also believe that Qwest faces significant challenges as a standalone entity.”