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MCI CEO could receive huge payout for Verizon MCI deal

According to a filing with the US Securities and Exchange Commission, under the terms of his employment agreement, Capellas is entitled to $11.3m in severance pay, $18.5m in restricted stock, and $9.43m in payment for taxes that may be assessed on the bonus.

Ashburn, Virginia-based MCI estimates that compensation for other officers who may leave after the acquisition will be $68.3m. Capellas received $25.2m in salary, bonus, and other pay in 2004, compared to just over $3m in 2003.

Prior to joining MCI, Capellas, 51, was the chairman and CEO of Compaq, which was acquired by Hewlett-Packard Co in early 2002 for $25bn. He left HP in November 2002 to pursue other career opportunities and received approximately $14m. He also reportedly received a $50m package when he joined MCI.

During his career, Capellas has gained a solid reputation across the market as an executive with a balance of strategic insight, operational expertise, technology and financial skills, and sales and marketing savvy.

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He has been widely credited for engineering the sale of MCI to Verizon. Only a few years ago it seemed unlikely that anyone would wish to purchase disgraced WorldCom, which had collapsed into Chapter 11 owing $11bn, making it the largest bankruptcy in history. Capellas took charge in December 2002 and reorganized the carrier, bringing it out of Chapter 11 in April 2004 when it emerged as MCI Inc.

When SBC Communications Inc announced in February this year that it was to acquire its former parent AT&T Corp for approximately $16bn, the move triggered some long overdue consolidation in the US communications landscape. Once the dust had settled on the SBC and AT&T deal, speculation soon turned to the number-two ranked long-distance phone company in the US, MCI.

Capellas and MCI quickly found themselves in the middle of a bitter tug-of-war battle between US telecoms operator Qwest Communications International Inc and Verizon Communications Inc. Verizon eventually won the day with its $8.46bn bid.

Capellas and his board had backed the Verizon deal all along, arguing that Verizon was the financially stronger partner and strategically it would be a better fit. However, he had to contend with a determined Qwest, which refused to accept the board’s decision and instead concentrated on a hearts-and-minds battle with MCI shareholders to persuade them that Qwest offered the better deal.

With New York-based Verizon seemingly unwilling to budge from its initial $6.75bn bid, Capellas had to contend with rebel shareholders as Qwest progressively upped the ante until its bid topped the $10bn mark. Despite this, he managed to squeeze an extra $2bn out of Verizon, which eventually raised its offer to $8.45bn.

It is thought that Capellas was also involved in negotiating the controversial sale of the largest shareholding of MCI to Verizon, after Mexican billionaire investor Carlos Slim Helu agreed to offload his 13.4% stake in MCI to Verizon, despite his being initially opposed to the Verizon acquisition. Capellas had also been battling to keep the rest of MCI shareholders onside despite the fact that there was a higher offer on the table from Qwest.

How successful he was will been seen on October 6 when MCI shareholders are scheduled to vote on the acquisition. The purchase also still needs approval from the Department of Justice, the Federal Communications Commission, 12 states, and the District of Columbia.
This article is from the CBROnline archive: some formatting and images may not be present.

CBR Staff Writer

CBR Online legacy content.