The new bid is likely to have a similar value to previous $8bn cash and stock offer, but could include more cash and less stock, as well as a mechanism that would protect MCI shareholders from getting less than promised if the value of Qwest’s stock dropped between the time a deal was reached and when the merger closed.
If Qwest does submit a higher value offer, the directors of MCI will find it hard to refuse, and the move may well force its current merger partner, Verizon Communications Inc, to increase its $6.75bn offer.
According to reports, one of the reasons why Qwest is so desperate to snare MCI is because the second largest telecoms carrier offers the ability for Qwest to reduce its own $17bn debt pile and save up to $2bn a year in costs. Analysts say Qwest could raise the cash in its offer several dollars per share and still improve the balance sheet of a merged MCI-Qwest.
There is little doubt though that Qwest is facing a David versus Goliath battle with market leader Verizon, which is by far the bigger and stronger company of the two. Qwest is currently conducting a hearts and minds campaign of MCI’s shareholders, and seems to be making significant headway with this strategy.
Hedge fund manager Elliott Associates, one of MCI’s top shareholders, said in a letter to MCI directors on Wednesday that it would vote against a merger with Verizon, as the deal now stands. A number of other MCI shareholders have also openly stated that the synergies and cost cuts of a Qwest-MCI tie would boost Qwest’s share price, making its offer even more attractive.
Shares in MCI rose 0.2% to $22.99 on Nasdaq, as of 5.20pm GMT Thursday.
MCI is due to reports its fourth quarter and year-end results on Friday, but the event threatens to be overshadowed by the looming prospect of a bidding war.
