Qwest: Twice Bitten, Not Shy
In a letter to MCI chairman of the board Nicholas Katzenbach and filed with the Securities and Exchange Commission (SEC), Qwest increases its bid by $2.50 to $30 per MCI share, or $9.7 billion. Qwest’s bid is now $6.90 per share, or about 30 percent, higher than Verizon’s winning offer of $23.10 a share, or $7.6 billion. (See And the Winner Is... Verizon!.)
“We continue to believe that a Qwest/MCI transaction will deliver superior value to shareholders as well as significant benefits to customers, employees and other stakeholders,” Qwest CEO Richard C. Notebaert says, appealing to the MCI board.
The cash portion of the new Qwest bid is raised to $16.00 per MCI share while the stock portion stays at $14. Notebaert says that results “in an aggregate of over $2.2 billion of additional shareholder value” over Verizon’s offer.
But MCI has twice before rejected Qwest offers in favor of lower ones from Verizon, which is both more profitable and less debt-ridden than Qwest. (See Verizon Wins Tussle for MCI, Qwest Ups MCI Bid to $8.45B, MCI Spurns Qwest Again, and Qwest's Quest to Ditch Its Debt.)
“I think if MCI were going to turn toward Qwest, I think they would have done it before this,” says analyst Thomas Watts of SG Cowen Securities. “I think they are very firmly committed to going forward with the Verizon bid.”
Qwest gives MCI until Saturday at 5 p.m. EST to determine that the new offer is “superior”; otherwise it will be withdrawn, the letter says.
Notebaert calls Qwest’s new bid “our best and final offer.” Glassy-eyed observers of this nearly three-month-long saga will be forgiven for their skepticism. (See Qwest Won't Qwit on MCI, Qwest to MCI: 'Pretty Please?', and Qwest Wants MCI, Says Report.)
SG Cowen’s Watts believes the issue will ultimately be resolved by an MCI shareholder vote. “I think the raising of the bid by Qwest increases the chance that a vote could go in favor of Qwest,” Watts says. “Some MCI shareholders are saying they’re going to bring the issue to a proxy very shortly, and that is normally a 30-day process.”
Qwest’s letter also pledges to pay Verizon $30 for each of the MCI shares Verizon bought from majority shareholder Carlos Slim on April 11. This, Qwest says, will avoid “the issue MCI currently has with the two-tier offer from Verizon.” (See Qwest Responds to Verizon's MCI Stock Buy and Slim's Pickins.)
Verizon bought Slim’s shares at a premium rate, which irritated many rank-and-file MCI shareholders. Now Qwest says it has secured equity commitments totaling $800 million from a group of MCI shareholders who “hold in excess of 13 percent of MCI's outstanding shares.”
Qwest did not return calls for comment on this story.
— Mark Sullivan, Reporter, Light Reading