On Saturday, MCI’s board of directors said in a statement: Qwest Communications International’s latest offer to acquire the company is superior to the terms of the current MCI/Verizon merger agreement.
But MCI maintained its recommendation of the Verizon offer, which values MCI about 30% less than Qwest’s bid. Verizon has until Friday to respond with a new bid and MCI has until May 3 to decide whether to officially support the Qwest offer.
In light of the change in this process, we will consider all of our options and determine how best to serve Verizon shareholders, Verizon said in a statement, playing its card close to its chest for the moment.
Qwest, which is already smaller than Verizon and fears being squeezed further by the giant an MCI-Verizon combination would form, issued a statement saying it is gratified that MCI called its bid superior.
Qwest offered $30 per share for MCI on Thursday, $16 cash and $14 in shares, and gave MCI, which had already recommended shareholders accept Verizon’s $23.10 per share offer, until Saturday afternoon to respond.
MCI’s board had rejected two earlier Qwest offers, saying it believed that an MCI-Verizon combination would be less risky in the long run. Verizon is on paper the stronger company, with less problematic debt and bigger revenue.
Verizon said MCI’s board had apparently concluded that the difference in price was sufficient compensation for the increased risks associated with completing the transaction and executing the business plan thereafter.
If Verizon refuses to up its bid, MCI will probably decide to recommend the Qwest alternative. Verizon could also drop its bid. In either case, Verizon would be eligible to up to $250m in breakup fees from MCI.
If it raises the cash to increase its bid to a price that MCI considers acceptable, Qwest will be hard-pressed to raise more cash to keep the bidding war going. The firm has already called its $30 bid its best and final offer.
Qwest’s latest bid increase was financed by $800m in cash commitments raised from shareholders representing 13% of MCI’s stock, according to Qwest.
In putting up their own cash to help Qwest secure the support of MCI’s board, those shareholders would stand to gain the difference between the MCI-approved $23.10 Verizon offer and Qwest’s earlier offer of $27.50.
This MCI shareholder funding commitment to Qwest also could keep the bidding war alive, potentially forcing Verizon to raise its offer yet again. Verizon has already agreed to pay almost $26 per MCI share, but only for the 13.4% of MCI’s shares owned by Mexican billionaire Carlos Slim Helu.
