Qwest-MCI Merger May Cost 15,000 Jobs
March 1, 2005
By BRUCE MEYERSON
AP Business Writer
The International Herald Tribune
NEW YORK Qwest Communications would cut as many as 15,000 jobs if it
succeeds in acquiring the long-distance phone company MCI, more than
double the reduction planned by Verizon Communications in its deal to
The proposed cuts are detailed in a presentation that Qwest
officials were planning to give investors at a meeting on Tuesday to
argue the case for its renewed $8 billion bid to purchase MCI.
Qwest, which is based in Denver and is the local phone company for
most of the Rocky Mountains and the U.S. Pacific Northwest, has
embarked on a campaign in the past week to break up the Verizon deal,
which is valued at
6.7 billion and which MCI accepted two weeks ago despite a lower price.
The presentation by Qwest, posted late Monday on the company's Web
site, detailed potential cost savings of more than $10 billion over the
first four years after the proposed merger with MCI.
Qwest also reaffirmed several points it made last week in improving
its bid - which offered enhancements to speed the cash payoff to MCI
investors and to provide downside protection on the stock portion of
the deal by offering to increase the amount of Qwest stock paid if the
market value of Qwest declined.
Those enhancements were designed to address concerns by MCI
shareholders that although the Qwest deal offered a higher initial
price, Qwest's inferior financial and strategic health made the terms
MCI, based in Ashburn, Virginia, has said its directors will
evaluate the revised Qwest bid but has so far stood behind the Verizon
merger as a deal offering more long-term value.
Including the cost savings, Qwest's offer could be nearly twice as
valuable to MCI shareholders as the Verizon agreement, Qwest asserted.
Qwest argued again that its deal would be far less harmful to
competition than a Verizon-MCI combination and therefore likely to pass
government scrutiny with less objection. Qwest's chief executive,
Richard Notebaert, made the same point in a letter to the editor that
was published on Monday in The Wall Street Journal.
The job cuts proposed by Qwest would total 12,000 to 15,000 from the
combined Qwest-MCI work force, which now employs about 81,000 people.
By contrast, Verizon said it would eliminate about 7,000 jobs.
Verizon, which is based in New York and is the dominant local phone
company in the Northeast and Mid-Atlantic, made its move to acquire MCI
in response to a $16 billion deal by SBC Communications to acquire
AT&T, announced in late January.
The Qwest deal values MCI at $24.60 per share, while Verizon's offer
is worth about $20.55 a share.
Shares of MCI closed up 15 cents at $22.75 on the Nasdaq stock
market on Monday. Qwest's shares rose 4 cents to close at $3.90 on the
New York Stock Exchange, while Verizon fell 23 cents to $35.97 on the
Notebaert, the Qwest chief executive, said he would use Tuesday's
meeting with 250 analysts and investors to press his case on why MCI
should accept the Qwest bid in preference to the Verizon deal.
Notebaert said in an interview that MCI had not yet responded to
Qwest's new terms. Qwest said on Monday that a combination would be
Notebaert has the support of investors including Bill Miller of Legg
Mason, MCI's 10th-largest shareholder, who said on Monday that he would
vote against the plan to be bought by Verizon. Owners of at least 12.5
percent of MCI stock oppose the sale to Verizon, the No. 1 U.S. phone
"Any rationale for preferring the Verizon offer is out the window,"
Miller, chief executive of Legg Mason Funds Management, which holds 5.6
million MCI shares and is Qwest's second-largest stockholder, with an
8.7 percent stake. "I'd hope that the MCI board would reopen
negotiations with Qwest."
Miller is at least the second big MCI investor in two days to say he
would vote against the Verizon deal at a shareholder meeting that may
take place within four months.
The New York hedge fund Elliott Associates made similar comments on
Friday. Other investors opposing Verizon's offer include John Paulson
of Paulson and Bruce Berkowitz of Fairholme Capital Management, each
holding a 3.5 percent stake; and Leon Cooperman of Omega Advisors, with 2.9
percent of MCI's shares.
Copyright (c) 2005, The Associated Press