MCI favors Verizon's revised offer

Citing concerns of its business customers, MCI today rejected Qwest Communications' higher $30 a share offer in favor of a newly revised offer from Verizon that adds up to $26 a share.

The revised Verizon offer values MCI at $8.44 billion when a separate stock buy deal with MCI's largest shareholder is factored in. Verizon announced April 11 that it had reached a deal to buy the 43.4 million shares owned by Carlos Slim Helu and affiliated entities for $25.72 a share, a price that at that time was a premium over what Verizon was paying for other MCI shares.

Qwest's final offer valued MCI at $9.76 billion.

The problem with a Qwest hookup is that MCI's prime business customers say they will cancel service contracts with MCI if it chooses Qwest over Verizon. "As their contracts come up for renewal, a number of customers have also requested rights to terminate their arrangements with MCI in the event of a Qwest transaction," the company said in a prepared statement. "These customer concerns, in the Board's view, pose risks in connection with a Qwest transaction that could negatively impact the value of the equity stake in a combined Qwest/MCI to be received by MCI's shareholders under Qwest's offer."

"From the standpoint of risk versus reward, Verizon's revised offer presents MCI with a stronger, superior choice," said Nicholas deB. Katzenbach, MCI board chairman, in announcing MCI's acceptance of Verizon's latest offer. "Shareholders receive enhanced value with greater assurance that the transaction will create additional shareholder value."

Jay Pultz, analyst with the Gartner Group, which advises business customers on telecom, said his company has advised its clients to make any new contracts with MCI conditional on the outcome of the current bidding war, to leave open the possibility of canceling a three-year deal rather than stay with MCI-Qwest.

Business customers are concerned about MCI accepting Qwest's offer over Verizon because of Qwest's financial instability, according to industry analysts.

MCI also cited the attractiveness of Verizon's wireless assets, which Qwest lacks, as well as "the relative strength of Verizon's and Qwest's capital structures" and the ability to invest in new ventures.