RealTime IT News

Qwest Meets Deadline, Increases MCI Offer

Qwest met its St. Patrick's Day deadline and raised its bid for MCI nearly $500 million, increasing the value of the acquisition to $26 per share, according to a Securities & Exchange Commission (SEC) filing by the company Thursday.

According to a statement by MCI, the company said it has received and is currently reviewing the revised merger offer, and will respond to the offer by March 28.

Richard Notebaert, Qwest chairman and CEO, vowed Wednesday to prove to the industry it was committed to an MCI takeover, and the cash bump reinforces the company has placed a priority on the acquisition.

Verizon has already entered an agreement with MCI to merge for $6.7 billion. A minority bloc of short-term MCI investors was angered by the deal, as the value of the agreement was $1.3 billion less than Qwest's bid of $8 billion. Verizon agreed to let MCI continue talks with Qwest, with a deadline on a new bid set for today.

In a letter attached to the SEC filing, Notebaert noted the increased value of the proposition to Nicholas Katzenbach, MCI chairman, and reminded him of the benefits the new bid brings to shareholders.

"Because the only change in our previous proposal is the significant increase in the value of our offer, we are hopeful that you can conclude your deliberations on our proposal quickly," the letter stated. "As each day passes, MCI stockholders are denied the ability to realize the benefits of the superior transaction we have proposed."

Robert Saunders, director of research at the Eastern Management Group, said the increase of cash will sow division between MCI's short- and long-term shareholders; the short-term investors want the cash Qwest is willing to pay, while long-term investors are backing Verizon's stronger financials.

The latest cash bid will strengthen the position of those short-term investors, Saunders said, and force Verizon to make some kind of counter-offer to show that it, too, is committed to MCI.

"This won't end up being a bidding war, where's its tit-for-tat," he said. "I just think what MCI's long-term investors are going to be looking for is some kind of commitment from Verizon that shows they are serious about the deal, because the way the industry has looked at this is that this is a must-have for Qwest and a nice-to-have for Verizon.

"The long-term investors need a little backfill from Verizon at this point saying, 'yes, Verizon is committed to this merger,'" he added.

For the time being, however, Verizon plans on sticking with its original offer. In a statement released Thursday, officials said the increased cash from the latest Qwest bid does nothing to address the fundamental concerns of the company's financial strength. On Wednesday, Ivan Seidenberg, Verizon CEO, went on the offensive Wednesday, saying Qwest had exaggerated the extent of the synergies possible through a combined Qwest-MCI merger.

"Qwest's most recent bid does nothing to address the fundamental concerns we have identified, while increasing the amount of cash to be paid out to shareholders exacerbates the risks," the statement read. "We believe our agreed-upon transaction represents a fair and sustainable value proposition for MCI's stakeholders, including the company's long-term investors, its customers, its employees, and its creditors.

"We trust that the MCI board of directors will continue to do what is right for these stakeholders, and we look forward to continuing to work with MCI to complete our exciting and mutually beneficial transaction."