RealTime IT News

Will Persistence (and Cash) Pay Off For Qwest?

UPDATED: Qwest's first bid for MCI was met with silence, but its second might not be so easy to ignore.

The Denver-based regional carrier today restructured its $8 billion offer for the network operator, accelerating the cash payout to shareholders. The offer stands at $26.40 per share -- $9.10 in cash, $15.50 in stock.

The sweetened offer is aimed at displacing Verizon's $6.7 billion proposal -- which has already won approval of MCI directors.

"This revised proposal is superior to the Verizon transaction, because it delivers greater value in cash and stock per MCI share, synergy value of approximately $18 per MCI share in a combined Qwest/MCI enterprise and more favorable regulatory certainty and speed," Qwest CEO Richard Notebaert said in letter to MCI's board today.

Lisa Pierce, an analyst with Forrester , said Qwest is still fighting an uphill battle given the unresponsiveness of MCI management to its earlier offer.

"It's pretty clear that MCI really wants to merge with Verizon," Pierce told internetnews.com. "Although certainly, making the offer more attractive will make it harder for MCI to summarily dismiss Qwest."

She said a lawsuit filed by an MCI shareholder against directors for accepting the lower offer is relevant to the rest of the process, but is unlikely to derail an Verizon-MCI merger if that's what MCI leaders want.

Clif Holliday, an analyst with telecom research firm Information Gatekeepers, said parts of the new Qwest offer were modeled on Verizon's bid, most notably, an immediate cash dividend.

Qwest's revised includes a similar bonus, putting the new bid in a very different light, Holliday said.

There have been other developments since Qwest's first offer for MCI on February 11 -- namely a new government stamp of approval. On Tuesday, Qwest said the General Services Administration (GSA) determined that it is eligible to compete for federal contracts.

The GSA, which sets procurement rules for federal departments, found that the company has taken steps to avoid a repeating accounting improprieties by changing management and instituting a new ethics program.

"We appreciate the care with which the GSA approached its review and are pleased that it is concluded so that we can now focus even more of our efforts on doing what we do best -- providing great service to government customers," Qwest CEO Richard C. Notebaert, said in a statement.

The GSA's endorsement could undercut a potential argument MCI directors may have had for rejecting Qwest. Before yesterday's ruling, there may have been a concern that if GSA ruled against Qwest, it would lock the combined company of a lucrative market.

But that doesn't mean Qwest has a clear path to acquiring MCI if its offer is acceptable. Verizon and MCI had more than a handshake deal; MCI will have to pay a break-up fee if their merger doesn't happen.