MCI Formally Spurns Revised Qwest Offer, Will Stay with Verizon
MCI once again rebuffed Qwest Tues. accepting a revised -- but still lower -- bid from chosen merger partner Verizon. Qwest said in a statement it was still assessing and left the door open to another run at MCI. Verizon offered $23.50 a share in cash and stock, which includes a 40-cent dividend MCI has already paid to shareholders. Qwest instead has offered $8.45 billion, or $26 a share.
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MCI said in a statement it would stick with Verizon, given that firm’s “substantial increase in its offer, the strength of its competitive position and the financial certainty at close make this offer compelling to our shareholders, customers and employees.” Qwest said in a statement: “We respect the right of Verizon to change the composition and value of their bid, but we still believe our proposal creates superior value for shareowners.”
In a change to the original deal, the breakup fee -- the price either company would have to pay should it cause the deal to fall apart -- rose from $200 million to $240 million.
“It’s not a surprise,” Precursor CEO Scott Cleland said Tues. on CNBC. “There was a clear preference for Verizon all along. They have a deal with Verizon. It’s only because of Qwest’s persistence that Verizon has had to come back in and up its bid. But it’s still less than what Qwest is offering.”
Cleland said Verizon’s solid financial standing relative to Qwest probably clinched the deal. “Verizon has 7,300% more free cash flow than Qwest does,” he said. “It’s a stunning number. These are not apples and apples. These are apples and oranges.” Cleland said he continued to question the net benefits of the deal for either Bell, given MCI’s continuing double-digit revenue decline. “I scratch my head why you would want to own a falling rock,” he said.
Bruce Berkowitz of Fairholme Capital, one of the largest Qwest stockholders, said Tues. the Verizon offer is an improvement but “still not good enough.” Berkowitz said the Qwest bid still is superior because of the size of the cash offer and the “synergies” between Qwest and MCI. “We believe Qwest. We believe that the synergies are real. We believe that the free cash flow that they can generate down the road is real.” Berkowitz said the slightly higher breakup fee leaves “the door open” for Qwest to come back in and continue its negotiations
Early Tues., before MCI released its response, Qwest CFO Oren Shaffer told a Banc of America investors conference he was “a little befuddled” at the amount of time it had taken MCI to respond to Qwest’s revised offer. Shaffer gave major investors credit for getting MCI management to take another look at his company’s offer. Shaffer said Qwest didn’t intend an April 5 deadline for a response from MCI as an “ultimatum.” Shaffer added: “We thought that this process has to have a next step. We've been going on since Feb. 13… At the end of the day we're simply trying to put a statement around that says let’s go to the next step of the process.”
Sen. Schumer (D-N.Y.) indicated in a statement he wasn’t troubled by the latest development. “I've spoken to [Verizon CEO] Ivan Seidenberg and I have been assured that this deal will increase the number of jobs in N.Y. and will not decrease consumer competition in the cell phone market,” Schumer said.