Clearly agitated at losing out to Verizon Communications Inc. (NYSE: VZ) in the race to buy MCI Inc. (Nasdaq: MCIP), Qwest yesterday laid out the details of its final bid for the long-distance carrier.
It showed that its cash, stock, and dividends package totaled $8 billion, about $1.25 billion more than Verizon's winning offer (see Verizon Wins Tussle for MCI).
In a document filed with the Securities and Exchange Commission (SEC), Qwest noted that it sent its bid to MCI on Friday, February 11, and that "numerous press reports" since then had "purported to describe the terms of this proposal."
That's a reference to last weekend's media reports that Qwest had put forward a $7.3 billion package for MCI. Qwest claims it filed the SEC report "in order to eliminate any public confusion regarding the terms of the proposal included in its letter."
Of course, there's always the chance that some MCI shareholders might question their board about why a bid worth $20.75 per share was accepted, and one worth $24.60 (including guaranteed quarterly dividends of $0.40 per share during the expected year-long closing period) was turned down.
Here are the details of Qwest's bid:
Table 1: How Qwest's $8 billion offer stacks up
|Qwest stock||$15.50*||$5.039 billion|
|Four quarterly dividends of $0.40||$1.60||$520 million|
|* Based on 3.735 Qwest shares per MCI share, with Qwest shares valued at Feb 11 closing price of $4.15 |
Source: Qwest SEC filing
To sum up, Qwest's bid was worth $7.997 billion, compared with Verizon's $6.746 -- a difference of $1.251 billion.
And Qwest's offer contained about $1 billion more in cash and dividends: Qwest's cash/dividend combo totaled $2.958 billion, while Verizon's came to $1.951 billion.
Qwest also claimed in the filing that its bid "contained statements as to the superior value of synergies available to MCI shareholders from the Qwest proposal and the significantly less burdensome regulatory approval process in a Qwest-MCI combination as compared to other parties in comparable transactions."
Earlier this week, Qwest CEO Richard Notebaert told analysts that he was keeping all his options open about the RBOC's future, noting that MCI's shareholders still have to vote on Verizon's accepted bid.
One thing MCI shareholders will be keeping an eye on is the share price performance of the RBOCs.
Verizon's $6.75 billion bid included 0.4062 shares for each MCI share, a stock component worth $4.795 billion, based on its closing share price last Friday of $36.31. Verizon's share price closed on Wednesday at $36.12, a negligible shift of 0.52 percent, shaving only $20 million off the value of Verizon's bid.
Qwest's bid included 3.735 shares for each MCI share, a stock component worth $5.039 billion based on last Friday's closing price of $4.15. Qwest's share price closed on Wednesday at $3.97. That's a 4.34 percent fall, and slices $219 million from the value of Qwest's bid.
In addition, the stock Qwest was offering was 1.2 billion newly issued shares, a move that would dilute the earnings potential of the current 1.8 billion shares quite considerably. The deal would have given MCI shareholders 40 percent of the total outstanding shares.
Of course Qwest's share price could easily bounce back up and Verizon's could drop some more, but Verizon is a bigger, stronger business, and Qwest is saddled with about $17 billion in debt. And it's right now that Qwest's bid details are being scrutinized closely -- and a $219 million dip is something Notebaert might not want anyone to shout about.
— Ray Le Maistre, International News Editor, Light Reading