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Qwest move could keep MCI bid alive

The carrier has released details of its rejected offer for MCI. Could it be angling for a second chance?

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
3 min read
Qwest Communications International may not be giving up its bid to acquire MCI, after all.

On Wednesday, the local phone company released details of its bid for MCI, which was rejected earlier this week when the long-distance carrier announced it had accepted a competing offer from Verizon Communications.

Analysts said Qwest's move was likely a last-ditch effort to rally support from investors.

"Qwest is hoping to put some pressure on the MCI board in the hope that they will reconsider their offer," said Qaisar Hasan, an analyst at Buckingham Research. "It's unlikely they will make a second bid, so this is their best hope to change the board's mind."

According to a U.S. Securities and Exchange Commission filing, Qwest offered $8 billion for MCI. Verizon's offer of $6.7 billion, which was accepted by MCI's board of directors, included $1 billion less in cash than the Qwest bid.

Some MCI shareholders have already voiced their concern over the board of directors deciding to take the lower offer. Analysts believe that Qwest's going public with this information could help fuel the shareholders' argument and potentially set off a new round of bidding.

Verizon spokesman Peter Thonis said the company continues to stand by the deal. "We made an offer, and it was accepted," Thonis said. "That is the status. As far as we are concerned, we have a strategic fit that no one else can match."

MCI is also sticking to its guns. "After an exhaustive review process of all the alternatives on the table, we are very

confident that our board has made the right decision for our shareholders, customers and employees," said Peter Lucht, a spokesman for MCI.

Qwest was not available for comment.

During Qwest's quarterly conference call with investors Tuesday, company CEO Richard Notebaert seemed disappointed with MCI's decision. But he did not indicate that Qwest would try to make a counter offer.

"There was $1 billion in cash left on the table," Notebaert said. "$1 billion is a lot of shareholder value to leave on the table. But that decision's been made, and it's time to move forward."

Although Qwest's offer was higher than Verizon's, some analysts argued that the Verizon deal is better for MCI in the long term.

"The MCI shareholders that are complaining tend to be more short term-focused," said Brad Wilson, an analyst at Legg Mason. "I think the bondholders and the longer-term investors are looking at the Verizon deal the same way the board has."

The offers from Verizon and Qwest are made up mainly of stock equity. Wilson said that since Verizon's stock has historically been more stable, and because the company is financially more secure than Qwest, it offers longer-term investors more security.

Hasan said MCI investors have already seen the value of their investments increase as talk of an acquisition grew.

"It's a little disingenuous for the MCI shareholders to say they are getting a raw deal from Verizon, since the stock has been gaining on all the acquisition speculation," he said. "But shareholders are never happy with the price of an acquisition. It's in their nature to want the best price possible."