The new offer -- $10.50 in cash ($6 in four quarterly dividends and $4.50 at the closing of the deal) and $15.50 in Qwest stock for each MCI share -- values the offer at $26 per MCI share. As MCI has about 325 million shares outstanding, Qwest's new bid values MCI at $8.45 billion.
MCI's share price closed Wednesday at $23.75. MCI today said it would review Qwest's new offer and respond by March 28 (see MCI to Review Qwest Offer).
The new offer is $450 million, or nearly 6 percent, higher than its previous bid of $24.60 per share, which was worth almost $8 billion (see Qwest Filing Details $8B MCI Bid). And it is $1.7 billion, a whopping 25 percent, higher than the $20.75 per share offer, worth a total $6.746 billion, that MCI originally accepted from Verizon (see Verizon Wins Tussle for MCI).
Although it had settled a on deal with MCI, Verizon earlier this month agreed that MCI could engage in talks with Qwest about its bid (see Verizon OKs MCI, Qwest Talks). In a March 16 letter addressed to MCI's board, and filed with the Securities and Exchange Commission (SEC), Qwest CEO Richard C. Notebaert noted that: "A Qwest/MCI combination will lead to fewer and less extensive divestiture demands from regulatory agencies and will avoid the industry concentration and public policy issues a Verizon/MCI merger presents. In fact, MCI’s legal counsel has acknowledged that the Qwest/MCI transaction could close more quickly than a Verizon/MCI transaction, although they did not agree with us as to how much more quickly."
He continued: "A substantial number of MCI stockholders have recognized that the value of these significant synergies and your own forecasts of improved performance can only be realized by MCI stockholders in a meaningful way if they retain a substantial portion of the combined company as they will in a Qwest/MCI merger. MCI stockholders will share appreciably in the value creation of a combined Qwest/MCI, but will have no meaningful share of Verizon after it merges MCI out of existence. In the past two weeks, many MCI stockholders have clearly expressed their preference for the Qwest offer through words and action."
Notebaert then spelled out how a Qwest/MCI coupling could save the operators $2.8 billion a year in costs:
- Network optimization: $819 million saving from the "elimination of duplicative facilities, improved scale yields, access/termination efficiencies"
- Staff cuts: $958 million saving by reducing overlapping functions in sales, network administration, and corporate functions
- Capital avoidance: $263 million saving by avoiding or redirecting "redundant spend on national networks"
- IT efficiencies: $132 million saving by "eliminating duplicative operations systems spend, improving application cost"
- Other savings: $631 million from consolidation of advertising, improving purchasing power, reducing real estate, and increasing "revenue penetration"
It's clear, however, that Verizon is willing to put up a fight -- and possibly even raise its bid. Yesterday, Verizon's chairman and CEO, Ivan Seidenberg, wrote a strongly worded letter to MCI chairman Nicholas Katzenbach and CEO Michael D. Capellas, saying Qwest's bid was not all that it was cracked up to be -- and calling into question the company's viability.
"Qwest fails to explain the financial alchemy required to keep Qwest afloat, complete the acquisition of MCI, and invest in the business," wrote Seidenberg. In the letter, he accuses Qwest of presenting misleading information in its MCI bid and says most of the cost savings will never materialize.
At the close of trading Wednesday, Qwest's share price stood at $3.82, giving it a market capitalization of $6.94 billion. Verizon's share price was $35.34, valuing the carrier at $97.9 billion.
— Ray Le Maistre, International News Editor, Light Reading