MCI Accepts Raised Verizon Bid

Verizon Sweetens Offer to $23.50 a Share

ALMAR LATOUR / Wall Street Journal 29mar2005

MCI Inc.'s board has accepted a sweetened takeover bid from Verizon Communications Inc., despite protracted negotiations with Qwest Communications International Inc., according to people familiar with the situation.

Verizon raised its cash-and-stock offer for MCI to $23.50 a share, including a 40 cent dividend MCI has paid to shareholders. Verizon added more cash to its bid and included a protection for MCI holders in the event that Verizon shares decline, these people said. The new offer raises Verizon's bid by about $900 million, but it's still below Qwest's latest offer.

Qwest threatened Monday to withdraw its $8.45 billion offer for MCI if the company didn't respond to its takeover bid by midnight April 5. Qwest also said it had lined up additional financing to address MCI's concerns that it could have trouble paying for the acquisition.

"We respect the right of Verizon to change the composition and value of their bid," said Qwest spokesman Tyler Gronbach. "We still believe our offer creates superior value for shareholders. We are going to assess the situation and determine what is in the best interest of shareholders, customers and employees."

MCI, the nation's second-largest long-distance telephone company, agreed Feb. 13 to be acquired by Verizon for $6.75 billion. But MCI resumed talks with Qwest after that company came back with a higher offer. Verizon had given MCI permission to discuss the offer with Qwest until midnight yesterday.

It is the latest development in what has turned into a protracted fight for MCI, which changed its name from WorldCom Inc. after emerging from bankruptcy proceedings in the wake of the massive WorldCom accounting scandal.

After being spurned by MCI last month, Qwest has made two sweetened offers for MCI.

Qwest, the local phone company in 14 states across the Rocky Mountains and Pacific Northwest, has offered $26 per share for MCI, consisting of $10.50 in cash, including the 40 cent MCI dividend, and Qwest shares worth $15.50.

Verizon, which dominates phone service in the Northeast and Mid-Atlantic, originally agreed to pay stock and cash currently worth $20.10 per MCI share. That includes $6 cash and Verizon stock currently worth $14.10.

While Qwest's bid is higher-priced, MCI has said that Qwest's financial health is inferior to Verizon's.

Still, Qwest has argued that its deal will generate more than twice as much savings as Verizon has promised, and that a Qwest-MCI deal would raise fewer objections from government officials concerned about lost competition. The savings include up to 15,000 job cuts, or more than twice as many as Verizon plans.

CHRONOLOGY

As a string of telecom mergers create pressure to consolidate, Verizon and Qwest battle over prime takeover target MCI.

• Early February: Qwest makes takeover bid for MCI and Verizon floats competing offer.
• Feb. 13: MCI's board approves Verizon's $20.75-a-share offer, worth about $6.8 billion.
• Feb. 17: Qwest reveals its spurned MCI bid was worth $24.60 a share in cash and stock, or $8 billion.
• Feb. 25: Qwest revises its bid, keeping the price at $24.60 a share but accelerating the cash payout to MCI shareholders.
• March 2: Verizon agrees to allow MCI to enter discussions with Qwest through March 17.
• March 16: Qwest raises its bid for MCI to $26 a share in cash and stock, or about $8.45 billion.
• March 28: Qwest gives MCI until midnight April 5 to respond to its latest takeover offer.