Qwest has now filed the first of an expected series of protests against SBC Communications, which in early February announced it would acquire its former parent, AT&T, for approximately $16bn. Qwest has told California regulators that the combined company would hurt consumers and businesses.
Qwest also asked the California Public Utilities Commission to examine the SBC-AT&T deal along with efforts by Verizon to buy MCI, which has spurned offers from Qwest to be taken over.
It is difficult to see how these two transactions could ever be found to be in the public interest, Qwest said.
Denver, Colorado-based Qwest plans to file additional protests as other states begin considering the deals.
Qwest is the main local phone carrier in 14 states in the rural western and northwestern US. It first broached the competitive argument in late February. It contends that industry consolidation would eliminate competition, which could lead to higher prices.
The Qwest chairman and chief executive, Dick Notebaert, argued last month that an MCI-Qwest combination would allow more competition than one between MCI and Verizon.
Over the past eight weeks Qwest has pursued MCI with the utmost vigor, even though MCI has three times rebuffed Qwest’s overtures in favor of Verizon. Earlier this month it turned down Qwest’s $8.9bn buyout offer in favor of Verizon’s $7.5bn deal.
MCI’s board has voiced concern about Qwest’s financial health as it is $17bn in debt. It was also concerned about the long-term value of the shares Qwest would use as partial payment to MCI shareholders. Qwest has tried to get around this argue by guaranteeing the price of its shares and increasing the cash element of its bid.
And it seems to be gaining some headway with this approach. According to the Financial Times, which quotes people familiar with the matter, the board of directors at Qwest and MCI has set aside discussions over price and are focusing on the terms of the material adverse condition clause in the merger agreement, which is one of the main sticking points in the deal.
Essentially, the two sides are reported to be arguing over what would happen if large numbers of MCI corporate customers abandoned the company between the signing of the merger agreement and the closing of the deal. If Qwest can reassure MCI, then MCI could switch its backing to Qwest’s deal, providing it increases the price of its offer from $27.50 to $30 per share.
Verizon would then have five days to decide whether to increase its $23.10 offer, or walk away (picking up a $240m break-up fee in the process).
Shares in Qwest fell 3.2% to $3.39 on the New York Stock Exchange as of 6pm BST on Tuesday. Verizon rose almost 0.6% to $34.21, while shares in MCI rose 1.3% to $26.18 on Nasdaq.
