Verizon Floats Informal Bid for MCI
Proposal Is Priced Near
Qwest's $6.3 Billion Offer;
Talks Become 'Meaningful'
By ALMAR LATOUR and DENNIS K. BERMAN
Staff Reporters of THE WALL STREET JOURNAL
February 10, 2005; Page A3
Talks between Verizon Communications Inc. and MCI are accelerating as Verizon has floated an informal acquisition offer in cash and stock for the long-distance company, people familiar with the situation say.
The informal offer is priced near Qwest Communications International Inc.'s tentative offer of $6.3 billion for MCI, which was made recently after months of talks, these people say.
Verizon's interest marks the latest development in a frenzy of telecom deals that are reshaping the industry into a field of just a few giants.
Verizon and MCI are still discussing details of any deal and the talks could still fall apart. No formal offer has been presented and the situation remains fluid, but the talks have become "meaningful" in recent days, says one person familiar with the matter. One factor still affecting Verizon's price negotiations is MCI's remaining liabilities, which include millions of dollars in taxes owed to several U.S. states.
Verizon's main competitor is shaping up to be SBC Communications Inc., which last month broke a long-running detente between the two firms and agreed to acquire AT&T Corp. for $16 billion. SBC's move gives the company a global network and an array of large corporate clients that Verizon currently doesn't have.
MCI could give Verizon its own global network for sending phone calls and data, and a roster of business customers. Since Sprint Corp. agreed to a $35 billion deal to buy Nextel Communications Inc. in December, MCI now stands as the last major long-distance company still up for sale.
Any MCI acquisition isn't without risk, as it would engage Verizon in the competitive market for business customers. Verizon is trying to transform itself from a predominantly local phone company serving the Northeast into a national communications giant, offering everything from wireless services to video delivered over new fiber-optic lines it is installing across the U.S.
Many of MCI's shareholders prefer a deal with Verizon over a tie-up with Qwest, in part because New York-based Verizon ranks as one of the nation's strongest and largest phone companies, with a market capitalization of more than $100 billion. Denver-based Qwest, by contrast, is seen as the weakest of the regional Bell companies and has a market value of roughly $7.8 billion.
Meanwhile, MCI's talks with Qwest have apparently cooled. Verizon has been gathering information about MCI's financial performance on and off for weeks.
Formerly known as WorldCom, MCI emerged from bankruptcy protection in April last year after disclosing the largest accounting fraud in U.S. history.
The stock market has come to anticipate an offer from Verizon, which has the financial strength to bid well above Qwest's $6.3 billion offer.
Those expectations sent MCI shares as high as $21.23 Feb. 7, though the shares have since retreated and were at $20.86 yesterday in 4 p.m. composite trading on the Nasdaq Stock Market.
But Verizon surely recognizes Qwest's own financial state. Saddled under $17.2 billion in debt and $1.81 billion in cash, the Denver-based phone company has little ability to raise its offer. Verizon thus has little incentive to top it now and add to its expense.
Qwest, of course, can come back with a higher offer, which Verizon could easily match or top if necessary.
Any deal that comes in below MCI's current market price could face some resistance from shareholders, who historically bristle at such "take under" scenarios. Any buyer is likely to counter that its offer would come in at a fair price when benchmarked over the last 30 or 60 days. Such a buyer would likely argue that press reports of a Qwest-MCI tie-up sent MCI shares higher, creating some unrealistic expectations of a big premium.
Many inside MCI -- as well as many large MCI shareholders -- favor a deal with Verizon, saying that it has a more certain future than Qwest. A Qwest combination, they said, would be more helpful in strengthening Qwest's balance sheet than in providing a strategic future for MCI. Whatever the outcome, MCI is certain to face yet another wave of layoffs and cost cuts.
my opinion:
1. MCIP is definitely in play
2. VZ will be the acquirer
3. Price will not be at premium, or much premium to current price. weshallsee larry |
