Verizon to Buy MCI for $6.8 Billion

[TNDan21]

Verizon to Buy MCI for $6.8 Bln-Sources

Mon Feb 14, 1:10 AM ET
By Jessica Hall

PHILADELPHIA (Reuters) - U.S. telecom Verizon Communications Inc. clinched a deal to buy long-distance carrier MCI Inc. for $6.8 billion, outflanking rival Qwest Communications International Inc., sources familiar with the situation said Monday.

The competition over MCI came in the wake of SBC Communications Inc.'s proposed $16 billion acquisition of long-distance telephone company AT&T Corp. and a wave of mergers among wireless telephone companies.

Although MCI and its long-distance rivals have suffered from shrinking revenues and increased competition, industry analysts say the companies' high-speed data networks, lucrative corporate customers and vast sales and marketing teams make them attractive buyout targets for the Baby Bells, the dominant local telephone companies.

The Verizon offer consists of cash and stock, and is expected to be approved by the boards of both Verizon and MCI before Monday morning New York time, sources familiar with the situation said. It values MCI at a slight premium to its $6.6 billion market value on Friday.

Qwest had hiked its takeover offer on Sunday to $7.3 billion in stock and cash, valuing MCI at $23 a share, a 10.8 percent premium. Qwest, the dominant local phone company in 14 states from Minnesota to Washington, previously had bid $6.3 billion.

"BETTER GROWTH OPPORTUNITIES"

Analysts had said MCI could justify to shareholders accepting a lower offer from Verizon.

"Verizon does not need to top Qwest's offer for its bid to be more appealing to MCI shareholders, in our view," Legg Mason analyst Daniel Zito said in a research report before news of the deal.

In addition to serving a larger and more dense local telephone market, Verizon also owns part of the No. 2 U.S. wireless carrier, Verizon Wireless, and boasts "better growth opportunities, stronger balance sheet, and an ability to pay a greater dividend," Zito said.

Verizon, the largest U.S. telecom by revenues, initially had offered a similar price to Qwest's first bid, but then tweaked its offer over the weekend, sources told Reuters.

MCI, which has about $20 billion in annual revenues and a market capitalization of $6.6 billion, could not immediately be reached for comment. Qwest declined to comment while Verizon could not be reached for comment.

Verizon sees MCI as a way to quickly enter the market for providing communications services to large corporations. MCI is the No. 2 player in the multinational communications market behind AT&T, while Verizon serves mostly small and mid-sized businesses.

Buying MCI would save Verizon the time and money of building a corporate-services business on its own. Yet, MCI would require significant investments to upgrade and integrate its networks, sources familiar with the situation said.

Qwest had seen MCI's $5 billion in cash and steady cash flow as a way to help it manage its $17 billion in debt.

Shares of MCI closed up 1.42 percent at $20.75 in Friday trading on Nasdaq. Meanwhile, Verizon shares gained 0.75 percent to close at $36.31 and Quest dipped a penny to close at $4.15 in Friday trading on the New York Stock Exchange (news - web sites).

As MCI weighed the takeover bids, it had to look at the price tag, the currency used -- cash, stock or a mix of both -- as well as long-term growth prospects offered by each suitor.

Verizon's stock has risen less than 1 percent over the past 12 months, while Qwest has fallen 5.7 percent. (Additional reporting by Sarah Coffey in New York)

Verizon to Buy MCI for $6.8 Billion

[jones]

So what's the Next Buyout.
Maybe BellSouth will buy Qwest
Or who's Buying the Last
Long Distance Carrier Sprint?
Is a 3 way Merger possible?

[bobolito]

I think someone should grab Qwest. Maybe Alltel or Sprint may shoot for them.

[Etorres777]

So does this mean that they'll still be bigger even though SBC buys AT&T?

[Fire14]

Originally Posted by Etorres777

So does this mean that they'll still be bigger even though SBC buys AT&T?

One of there press release's said "This makes us, without question, the solid No. 2 in the market," he said. "We're very excited to get going on this." So I guess SBC/AT&T will still be #1 in the country.

[Fire14]

This could make the merger interesting if alot of shareholders are against the Verizon deal.

Some MCI holders slam Verizon deal
Several big shareholders express unhappiness with $6.75 billion offer, want another look at Qwest.February 15, 2005: 4:21 PM EST

WASHINGTON (Reuters) - Several large shareholders of MCI Inc. say they were unhappy with the planned $6.75 billion sale of the company to Verizon Communications Inc. and suggested that Qwest Communications International Inc. should press its higher offer.

"The company in my opinion is being given away," said Bruce Berkowitz, chief investment officer at Fairholme Capital Management, which owns 11.1 million MCI shares. "This is not over. I think the owners need to have a say."

Verizon's (Research) bid, which beat out a $7.3 billion offer by Qwest (Research), includes an exchange of stock valued at $4.8 billion, based on Friday's closing prices, and $488 million in cash. MCI (Research) would also pay dividends of nearly $1.5 billion from its own cash, bringing the total value to $6.75 billion, or $20.75 a share.

Berkowitz said that several large owners of MCI were not happy with the transaction price.

John Paulson, whose Paulson & Co. hedge fund holds 10.8 million MCI shares, said Qwest's final $7.3 billion offer would have given MCI shareholders $24.60 per share, including $9.10 per share in cash. That price could have gone higher given that Qwest's shares were rising on news of an MCI deal.

"Compared to the Verizon deal, Qwest seems to give much more value," Paulson said.

Shares of MCI rose over 2 percent Tuesday afternoon on the Nasdaq, after falling sharply on Monday when the deal was announced. Analysts said the increase was spurred by investors hoping for Qwest to pursue its bid.

Sources familiar with the talks said Qwest was seen as the weaker suitor due to its debt load, lower cash flow and less attractive business profile.

Verizon, the largest U.S. telecommunications company, said it expects to reap savings and increased revenue with a net present value of about $7 billion from the deal.

"I am very comfortable that we have a compelling offer for shareholders, and I am not particularly concerned about somebody coming in over the top," Verizon Chairman Ivan Seidenberg told analysts on Monday. "There is a very high hurdle for them to meet to make that happen."

But Qwest Chairman Richard Notebaert told analysts on Tuesday that based on news reports, it appeared MCI had left $1 billion in cash on the table by choosing Verizon's bid over Qwest. Notebaert said the company was "looking at its options" on MCI, but did not provide details. Notebaert told Reuters he had not talked to any MCI shareholders.

Berkowitz and Leon Cooperman, chairman of Omega Advisors, which owns 2.8 percent of MCI, said they would meet individually with MCI officials on Wednesday to discuss the deal.

Cooperman said it was up to Qwest to press its offer as an alternative.

"If Qwest believes they have a superior proposal, we would like to hear it," Cooperman told Reuters. "We're prepared to campaign for their proposal should they have one that we agree with them is superior."

MCI, which dropped the WorldCom name and emerged from the largest bankruptcy in U.S. history last April, had been focusing on stabilizing its declining revenues and returning cash to shareholders. The company has $5.5 billion in cash on hand.