Qwest Plays Field As MCI Gets Coy On Deal Proposal
MCI hasn't responded to a $6.3 billion acquisition offer from Qwest Communications International Inc., prompting Qwest to explore alternative scenarios in case the deal falls through, people familiar with the situation say.
Meanwhile, MCI and Verizon Communications Inc. continued exploratory talks during part of the weekend, as Verizon seeks details about MCI's financial performance, according to people familiar with the talks. Verizon still hasn't decided whether to bid for MCI, one of the nation's second-largest long-distance phone companies, these people say.
Verizon, a local-phone and wireless giant with a market capitalization of nearly $100 billion, could offer more cash than Qwest or even a stock premium to MCI shareholders.
Some Verizon executives have long wanted the New York company to bolster its ability to serve corporate customers by making an acquisition, a conviction reinforced by SBC Communications Inc.'s agreement last week to acquire AT&T Corp.
With Verizon undecided for now, MCI, of Ashburn, Va., is keeping its options open and stopped communications for most of the weekend with Qwest. In the past few days, Qwest Chief Executive Richard C. Notebaert personally reached out to MCI CEO Michael Capellas but didn't get a call back, according to people familiar with the situation. Other Qwest officials also reached out to MCI and didn't receive replies from the company either, these people say.
Qwest is a hybrid in the telecom industry, with both a nationwide fiber-optic network and local-phone operations in 14 states, many in the West.
Under Qwest's tentative offer for MCI, issued after months of talks between the two companies, the combined entity would save between $2 billion and $3 billion in annual costs after the deal, people familiar with the situation say. Those savings would result from eliminating duplicate resources, including network assets and staff.
Under the planned merger, Qwest would keep both brand names, at least in the near term. Qwest would be the name for the local-phone operations and MCI would be the brand for all corporate phone and data services.
An MCI-Qwest combination would also represent a thicket of past and pending legal liabilities: The two have already paid a combined $1 billion in fines to the Securities and Exchange Commission for accounting misdeeds during the early 2000s. Qwest still faces investor lawsuits for which it has reserved at least $500 million for payouts to shareholders.
With the prospect of a deal uncertain, Qwest officials are already analyzing what other strategic options may be available to the company if the merger with MCI doesn't work out.
Qwest investors continued to endorse a tie-up with MCI, sending Qwest shares up 10%, or 45 cents, to $4.85 in 4 p.m. New York Stock Exchange composite trading. Having slipped to just $2.65 in August, Qwest shares on Friday were 15 cents shy of their 52-week high. MCI's shares have climbed as well, gaining 88 cents, or 4.4%, to $21.03 in 4 p.m. trading on the Nasdaq Stock Market.
But Qwest, of Denver, is playing a risky game. Should it fail to clinch an MCI deal now, analysts predict that its shares would plummet, as the prospects for another merger partner narrow. With SBC buying AT&T, and BellSouth Corp., Atlanta, staying out of the merger frenzy for now, a deal with MCI still represents Qwest's best shot at improving its financial position |
