RealTime IT News

MCI Chooses Verizon, Spurns Qwest

UPDATED: MCI has agreed to merge with Verizon after the Baby Bell increased its bid by $1 billion, the companies said this morning.

The new $7.6 billion price tag is still lower than Qwest's $8.45 billion proposal -- however, Ashburn, Va.-based MCI thinks its long-term prospects are better with Verizon.

"We believe Verizon's substantial increase in its offer, the strength of its competitive position, and the financial certainty at close make this offer compelling to our shareholders, customers and employees," MCI Chairman Nicholas Katzenbach said in a statement.

The merger, which requires approvals from shareholders and regulators, will create a telecom that's strong in local consumer services as well as business and government accounts.

The revised agreement also raises the breakup fee. If this deal falls through, MCI will pay Verizon $240 million, which is up from $200 million in the previous proposal.

The decision to stay with New York-based Verizon is a blow to Qwest , which made an aggressive run at MCI in hopes of becoming a national player in a consolidating market.

In addition to a higher price, Qwest argued that a Qwest-MCI combination would offer more synergies and could clear the regulatory process sooner -- claims that Verizon disputed.

"We respect the right of Verizon to change the composition and value of their bid, but we still believe our proposal creates superior value for shareowners," Qwest said in a statement today. "We are going to assess the situation and determine what is in the best interests of shareowners, customers and employees."

On Monday, Denver-based Qwest set an April 5 deadline for its takeover bid. But MCI, which previously agreed to a $6.7 billion deal with Verizon before Qwest burst in, didn't need nearly that long.

Qwest and Verizon covet MCI because of its large IP data-service deals with government agencies and corporations. And with the pending merger of SBC and AT&T , neither wants to be left behind by the wave of industry consolidation.

The Baby Bells consider those long-term, high-margin contracts crucial to their future prosperity, as cable operators, VoIP upstarts and wireless carriers try to hone in on their traditional businesses.