Posted on 05/02/2005 9:30:36 PM PDT by HAL9000
NEW YORK (AP) -- The three-month bidding war for long-distance provider MCI ended Monday as Qwest dropped out after MCI agreed to an $8.54 billion deal with Verizon and rejected a higher-priced offer from Qwest for the fourth time.The price tag for MCI Inc. ended up about 25 percent higher than what Verizon Communications Inc. originally agreed to pay to acquire the phone company formerly known as WorldCom.
But it is still 13 percent less than the $9.85 billion offered by Qwest Communications International Inc. in what became the biggest telecom bidding war since 1999 -- when Denver-based Qwest outgunned Global Crossing Ltd. to acquire the Baby Bell U S West during the technology bubble. Throughout the bidding process, MCI directors suggested they were troubled by Qwest's $17.3 billion in debt.
Shares of MCI fell 3 percent Monday, dropping them below the price of at least $26 per share Verizon agreed to pay on Monday. Qwest had offered $30 a share in cash and stock.
Verizon hasn't said whether it plans to continue using the MCI brand name, but the takeover will keep Verizon on more equal footing with SBC Communications Inc., the San Antonio-based phone company whose $16 billion deal to acquire AT&T Corp. set off the scramble for MCI in late January.
The buyouts of AT&T and MCI highlight the unsustainability of long-distance services as a standalone business. Nevertheless, both companies come with vast fiber-optic networks and valuable corporate clients that will transform SBC and Verizon into national and international players, firmly establishing them as the two dominant companies in the traditional U.S. phone industry.
The deals also signal an end to a two-decade battle that started with the 1984 breakup of the national Bell monopoly into eight rival phone companies: AT&T and seven Baby Bells. Since 1997, four of those companies have been reintegrated into SBC and two others combined into what is now Verizon. The two remaining independents are Qwest and BellSouth Corp.
While consumer advocates bemoan the consolidation of power as a threat to competition, the telephone business is beset by price pressure from non-traditional rivals. Chief among these are cell phones and Internet-based calling from cable TV companies and others.
Just last month, SBC cut the price for unlimited local and long-distance calls to $40 a month, plus $10 to $15 in taxes and fees. The cut from $49 a month takes a big chunk out of the savings one might find with Internet-based services, which are typically priced from $20 to $40 a month.
Verizon Wireless and SBC's partly owned Cingular Wireless also are the two largest cellular businesses in the nation. But a third recent deal in the telecom industry, the $35 billion merger between Sprint Corp. and Nextel Communications Inc., amounts to a huge bet that wireless technology is all that's needed to compete rather than physical phone lines connected to homes and offices. As part of the deal, Sprint is getting rid of its local phone business.
SBC is paying nearly twice as much for AT&T in terms of overall price. But thanks to the bidding war, Verizon is paying up to 50 percent more in relative terms for MCI, a company of much smaller size, revenue and profit than AT&T.
MCI agreed to the new Verizon deal slightly more than a week after it MCI tentatively threw its support behind the latest Qwest bid. But it stopped short of accepting that offer and Verizon was given a week to respond with an improved proposal.
Verizon ended the bidding by increasing its bid from $23.10 per MCI share to at least $26. MCI investors are now slated to receive $5.60 in cash, the same as in Verizon's prior bid, and at least $20.40 worth of Verizon stock for each share of MCI.
The stock payment may be worth more if Verizon's share price rises by the time the deal closes.
Both MCI and New York-based Verizon stressed that the takeover will protect the interests of MCI investors by providing greater comfort for MCI's valuable base of corporate customers.
"A large number of MCI's most important business customers had indicated that they prefer a transaction between MCI and Verizon rather than a transaction between MCI and Qwest," MCI's statement said.
Qwest bristled at that, as well as the MCI board's persistent assertions that Qwest's finances and business prospects were such a worry that a lower-priced deal with Verizon made more sense.
"By accepting a lower offer, without even contacting Qwest, and by reportedly allowing Verizon to instruct MCI to impugn Qwest, it is only fair to conclude that MCI is more interested in bending to Verizon's will than serving its shareholders," a Qwest statement said. "It is no longer in the best interests of shareowners, customers and employees to continue in a process that seems to be permanently skewed against Qwest."
A spokesman for Qwest said the decision was "final," making it unlikely hedge funds and other investors will be able to ride the bidding war any higher. In fact, Monday's drop in MCI's share price could be a sign that short-term players have begun heading for the exits.
MCI shares fell 84 cents to $25.70 in Nasdaq trading. Verizon's shares also fell, sliding 83 cents, or 2.3 percent, to $34.97 on the New York Stock Exchange. Qwest shares rose 5 cents, or 1.5 percent, to $3.47 on the NYSE.
I guess only time will tell if MCI is an albatross or an asset.
I wonder if verizon will soak up what it needs and get rid of the long distance portion to some sucker.
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