The move sets the stage for what will likely become an interesting regulatory battle, as Qwest attempts to persuade regulators that the MCI-Verizon deal and the separate SBC-AT&T merger will be bad for competition.
Verizon upped its bid from $23.50 to $26 per share yesterday, $5.60 in cash and the rest in shares, and MCI’s board simultaneously endorsed it as superior to the week-old $30 a share Qwest bid, which had a $16 cash component.
On the news, Qwest stepped aside, complaining bitterly. By accepting a lower offer… it is only fair to conclude that MCI is more interested in bending to Verizon’s will than serving its shareholders, Qwest said.
It is no longer in the best interests of shareowners, customers and employees to continue in a process that seems to be permanently skewed against Qwest, the company said, apparent confirmation that it will no longer pursue the bid war.
MCI, as it has when accepting previous lower Verizon bids, pointed out that the combination with Verizon is less risky. The strength of the merged company was an important factor in the decision, the firm said.
From the standpoint of risk versus reward, Verizon’s revised offer presents MCI with a stronger, superior choice, said MCI chairman Nicholas Katzenbach, explaining the board of directors’ decision.
MCI came to its conclusion after considering factors such as network capacity, potential synergies, strength of the wireless business, capacity to invest in infrastructure, tax savings and debt. Qwest has a bigger debt problem than Verizon.
MCI added that some important customers did not want to a Qwest deal, saying: 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.
Qwest had previously said that more than 50% of MCI’s shareholders preferred the richer Qwest deal. Some MCI shareholders actually committed $800m to boost Qwest’s bid, which had the eventual effect of also boosting the Verizon bid.
Verizon and Qwest both began talking to MCI last year. Verizon announced an agreed $6.75bn bid in February, then Qwest countered with a $7.6bn bid. Qwest’s final bid was worth $9.9bn, Verizon’s is worth $8.5bn.
While Qwest looks to have thrown in the towel for now, Verizon and MCI do not expect the deal to close for about a year. First, the shareholders of both companies have to approve the deal, then the regulators have to take a look, possibly giving Qwest an opportunity to throw a spanner in the works.
Qwest has already complained to the Federal Communications Commission and the California Public Utilities Commission over the SBC-AT&T merger, and suggested yesterday it will do the same for MCI-Verizon.
The proposed industry mega-mergers will undoubtedly reduce customer choice, Qwest said. These issues will need to be addressed during the regulatory approval process for the Verizon/MCI and SBC/AT&T mergers.
