MCI's silence creates a buzz
Lack of response to Qwest offer a wise strategy, analyst says By Jeff Smith, Rocky Mountain News Thursday, February 10, 2005

Don't read too much into MCI's weeklong lack of response to Qwest's $6.3 billion takeover offer, an analyst cautioned Wednesday.

Scott Cleland, chief executive of the Precursor Group, an independent research firm, said MCI not only isn't required to respond immediately, but it might not be the best tactic to do so. And that includes returning phone calls.

"This isn't about Miss Manners," Cleland said. "This is about negotiating."

In recent days, much has been made of reports that MCI officials, including Chief Executive Michael Capellas, hadn't returned recent phone calls by Qwest executives, including CEO Dick Notebaert.

On Wednesday, one source familiar with the situation said a conference call between Qwest and MCI was to take place Tuesday night, but another source said he was unaware of such a call.

Experts say MCI's executive team and board might want to keep Qwest at bay to give MCI an opportunity to talk to other potential suitors, such as Verizon.

"Neither Qwest nor MCI have lots of potential dance partners," Cleland said.
"AT&T landed SBC, so the MCI shareholders think they should be able to land one of the big Bells. But just because SBC is willing to take a monster gamble doesn't mean Verizon will (on MCI), and most assuredly BellSouth won't."

Nell Minow, editor of the Corporate Library, which focuses on the relationship between company management, boards and share owners, said the "best practice" would be for MCI to return phone calls even if it is only to say the company is carefully considering Qwest's offer.

But perhaps that's how Capellas had left it with Notebaert.

Minow and others stressed that in today's environment, a company board of directors has the clear responsibility to form a committee to seriously consider any offer.

Once it's determined the potential buyer has the funds necessary to complete the deal, an independent adviser typically would help the company look at the strategic and financial implications of the deal.

For its part, Qwest has looked at such implications and concluded that $1 billion to $4 billion of annual costs could be erased partly by eliminating duplications in the two companies' long-distance networks.

One source who has an extensive knowledge of how boards think said he believes Qwest's lingering shareholder suits stemming from its accounting scandal also could make MCI wary.

Such litigation makes it difficult to value Qwest's stock, he said, and plaintiffs in the shareholder suits may demand more if they see Qwest merge with MCI, which has deeper pockets. Qwest already has indicated an estimated minimum liability to settle the suits at roughly $700 million.

An interesting sidelight came Wednesday when Carly Fiorina was ousted as Hewlett-Packard CEO. Almost immediately, there was speculation MCI's Capellas is the top choice to replace Fiorina.

Capellas once held the No. 2 position at H-P and was instrumental in the landmark merger between H-P and his former company, Compaq Computer Corp.