Qwest Gives MCI Deadline to Choose Offer
Qwest Communications International Inc. issued a deadline to MCI Inc. on Monday, giving the long-distance telephone company one week to decide if it will jilt merger partner Verizon Communications Inc. in favor of a richer buyout proposal from Qwest.
The ultimatum was delivered in a letter to MCI’s board that also said Qwest lenders had committed an extra $500 million in financing to back the $8.45-billion bid, which is currently valued at $1.9 billion more than the Verizon deal.
MCI, formerly known as WorldCom, declined to comment on the letter or on whether a week of negotiations with Qwest had proven fruitful. The MCI board met Monday, but it was unclear whether any announcements were imminent.
Verizon agreed last week to give MCI until the end of Monday to meet with Qwest. There was no requirement, however, that MCI immediately issue a verdict on those talks.
“Since both of us recognize the importance of reaching a decision promptly, we think it is reasonable to inform you that if we have not executed an agreement on or before midnight, April 5, 2005, our offer will be withdrawn,” the letter from Chief Executive Richard Notebaert said.
The deadline may turn the tables on MCI, which until now has set most of the rules for Qwest’s unsolicited courtship.
Having spurned Qwest’s original $8-billion offer, MCI has seemed to hold the upper hand. Its board has shown little enthusiasm or urgency to discuss even the sweetened $8.45-billion bid Qwest submitted two weeks ago despite growing pressure from some MCI shareholders to consider the higher bid.
Under the terms of its merger agreement with Verizon, reached in mid-February, MCI has several options at this point.
The company could reject Qwest’s courtship again and stick with Verizon, or it could declare Qwest’s bid “superior,” a determination that would trigger a five-day window for Verizon to respond with a better offer.
MCI also could try to buy more time by announcing that the Qwest offer has the potential to produce a superior deal, though the deadline set by Qwest could make that option less likely.
Qwest, the local phone firm in 14 states across the Rocky Mountains and Pacific Northwest, expressed confidence that worries about its financial health had been put to rest.
Denver-based Qwest has offered $26 a share for MCI, consisting of $10.50 in cash and Qwest shares worth $15.50.
Verizon, which dominates phone service in the Northeast and mid-Atlantic, has agreed to pay stock and cash valued at $20.10 an MCI share. That includes $6 cash and Verizon stock valued at $14.10.
Although Qwest’s bid is higher, MCI has said that Qwest’s financial health is inferior to Verizon’s.
At the end of 2004, Qwest had nearly $16.69 billion of long-term debts and $1.77 billion in cash and liquid assets. The company lost $1.79 billion for the year as revenue fell 3.4% to $13.81 billion, generating just $1.85 billion in free cash flow from operations.
By contrast, although Verizon ended 2004 with long-term debts of $37.67 billion and just $4.55 billion of liquidity, its business generated $71.28 billion of revenue, net income of $7.83 billion and $21.82 billion of cash.
Qwest also lacks its own national wireless business and a strong corporate business, making it harder to compete with Verizon and SBC Communications Inc., which in January agreed to buy AT&T; Corp. and owns Cingular Wireless in partnership with BellSouth Corp.
