Boosts MCI Bid to $26 Per Share
New York Times
By THE ASSOCIATED PRESS
Monday, May 2, 2005
NEW YORK (AP) -- In a continuation of its bidding war with Qwest, on Monday Verizon said it has agreed to raise its offer for MCI Inc. to at least $26 per share in cash and stock, and MCI's board is unanimously recommending approval of the amended agreement to its shareholders.
Under the sweetened deal, each MCI share would be exchanged for cash and stock worth at least $26, consisting of $5.60 in cash plus the greater of 0.5743 Verizon shares for every common share of MCI or a sufficient number of Verizon shares to deliver $20.40 of value.
Under this price protection feature, Verizon may elect to pay additional cash instead of issuing added shares over the 0.5743 exchange ratio.
Ivan Seidenberg, Verizon's chairman and CEO, said, ''We note MCI's concerns about the impact on its business of the present uncertainty about its future. Verizon is committed to a business plan for MCI that will achieve cost savings in an orderly fashion while maintaining the integrity and scope of MCI's services. We believe Verizon's commitment to build upon MCI's strengths will effectively address the concerns expressed by MCI's customers.''
The transaction requires approval by MCI shareholders and regulatory clearance, which the companies are targeting to obtain in about a year. The proxy statement is currently under review by the SEC, and shareholders are expected to vote this summer.
In a separate statement, MCI said that while MCI shareholders benefit from a ''floor'' of $20.40, they also benefit from the upside potential of an increase in Verizon's stock price.
In addition, MCI's board noted that a large number of MCI's most important business customers had indicated that they prefer a transaction between MCI and Verizon rather than a transaction between MCI and Qwest. Additionally, as their contracts come up for renewal, a number of customers have also requested rights to terminate their arrangements with MCI in the event of a Qwest transaction.
These customer concerns, in the board's view, pose risks in connection with a Qwest transaction that could negatively impact the value of the equity stake in a combined Qwest/MCI to be received by MCI's shareholders under Qwest's offer.
''From the standpoint of risk versus reward, Verizon's revised offer presents MCI with a stronger, superior choice,'' said Nicholas deB. Katzenbach, MCI chairman. ''Shareholders receive enhanced value with greater assurance that the transaction will create additional shareholder value.''
As reported, Qwest Communications International Inc. has said its nearly $10 billion offer will be withdrawn at midnight tonight if MCI's board did not switch its support away from a deal with Verizon Communications Inc. by that time.
Last weekend, MCI declared its earlier $7.5 billion agreement with Verizon was inferior to the Qwest bid and indicated it would change its recommendation to shareholders if Verizon didn't agree to sweeten the offer.
That statement triggered a provision in the merger agreement that gave Verizon a five-day window to respond with an improved bid or request a $250 million breakup fee.
Verizon allowed that timeframe to expire at midnight on Friday, having said that its existing deal entitled the company to wait for MCI shareholders to vote on the buyout.