Qwest Readies New Bid For MCI

With hours to go before a deadline comes due on new bid for MCI , Qwest’s chairman and CEO vowed his company is still committed
to winning.

“Our activities over the next 24 hours will demonstrate our commitment to
winning MCI,” Richard Notebaert said in a statement Wednesday afternoon.
“It is unfortunate that some in the process feel MCI shareholders should be
deprived of the true value of their asset.”

News reports attribute sources close to the deal that say Qwest will raise its bid by nearly $500 million to convince MCI executives to dump Verizon’s bid for the company, bringing the total to nearly $8.5 billion.

The bid comes little more than a month after MCI’s board of directors agreed
to a $6.7 billion offer by
Verizon, $1.3 billion less than Qwest’s original bid for the company. MCI’s
acceptance of the Verizon bid was almost immediately met with complaints by
some MCI investors.

David Willis, a vice president and research lead at Meta Group, said the
Qwest bid is a battle between MCI’s short-term investors, who want the
higher payoff of a Qwest bid, and long-term investors who see the value
proposition in the more stable Verizon.

“Frankly, the deal with Qwest doesn’t make a lot of sense and Verizon wins
either way,” he said. “Either Qwest digs itself a deeper hole, which helps
Verizon competitively, or Verizon manages to pick up MCI, which is their
current strategic goal.”

Executives at MCI maintain they are better off with Verizon, which has a
more solid financial foundation than Qwest, a telecom with $18 billion in
debts, according to Willis. Qwest is also still fresh from last
year’s
settlement with the Securities & Exchange Commission (SEC) over
charges of fraud within the company.

Qwest executives argue the potential revenues and earnings of a combined
Qwest/MCI company would offset its debts, and further argued consumers in
the United States are better off with a telecom industry that has three
major players instead of two: SBC-AT&T, two companies currently in the
middle of a merger that prompted
the Verizon and Qwest bids in the first place; Qwest-MCI; and Verizon.

Willis disagreed with that assessment, saying the market is best served
having two very strong telecom providers, like Verizon-MCI and SBC-AT&T,
rather than keeping Qwest in the game, a company that is performing poorly
in the market.

Executives also complained their bid wasn’t given the
attention
expected of a larger bid, with Notebaert saying he had to
divine MCI’s intentions through press releases from the company.

The criticism prompted Verizon officials to give Qwest two
weeks
to produce another bid on MCI, a deadline that ends Thursday.

“It is in the best interests of the stakeholders of both Verizon and MCI to
address recent market speculation regarding Qwest’s claims that it can
deliver greater value to MCI’s shareholders,” Verizon said in a statement at
the time.

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