Verizon makes an offer for MCI
New bidder matches Qwest
By Tom McGhee, Staff Writer
Friday, February 11, 2005
Verizon reportedly has made a bid for MCI that could torpedo Qwest's hopes to buy the long-distance giant.
Verizon has made an unofficial cash-and-stock offer to buy MCI that is roughly equal to the $6.3 billion Qwest has offered, The Wall Street Journal reported Thursday.
Talks between Qwest's and MCI's investment bankers, advisers and deal teams have continued throughout the week, although top-level executives have not been involved, said a source familiar with the discussions.
Faced with a choice between Denver-based Qwest, a company with limited growth prospects and high debt, and New York-based Verizon, an industry-leading voice and data provider, shareholders would favor Verizon, said David Feinman, a trader at Havens Advisors, who holds MCI stock and bonds.
He said Verizon is healthy and has good prospects for growth and is less likely to go down in value than Qwest.
"If Verizon wants it, Verizon gets it," said Scott Cleland, chief executive of the Precursor Group, an independent research firm.
MCI's shares closed Thursday at $20.46, down 40 cents, prompting one analyst to suggest that some investors have been unimpressed by the offers so far.
Both Qwest and Verizon have offered less than MCI's $6.5 billion market value.
News of the Verizon offer prompted analyst Donna Jaegers of Janco Partners to say it is in MCI's interest for such developments to become public in order to create a bidding war.
Verizon fell 2 cents to $36.04, and Qwest closed at $4.16, down 12 cents.
MCI, Qwest and Verizon would not comment on Thursday's developments.
Jaegers expects Qwest to remain in the hunt for MCI.
Qwest has less to lose, and more to gain, than Verizon has by teaming up with MCI, Cleland said.
MCI, a long-distance provider based in Ashburn, Va., has $5.6 billion in cash that Qwest could use to help pay down its $17.2 billion long- and short-term debt. MCI also is facing increasingly large revenue losses as customers turn to cellphones or Internet phone service. It could benefit from Qwest's steady cash flow.
"MCI a few years ago was reporting $35 billion in revenue. They are reporting around $20 billion this year. That is a falling anchor of a business," Cleland said.
Large MCI investors are eager to unload the company, analysts said.
The investors who purchased the company's bonds for $6.6 billion while MCI was in bankruptcy want to recoup their investment quickly and have no interest in running a phone company, said Scott Keller, president of DealAnalytics.com
"The shareholders are hedge funds and distress players that bought into the bankruptcy process," he said. "They want to cash out sooner rather than later."
Staff writer Tom McGhee can be reached at 303-20-1671 or firstname.lastname@example.org.