Qwest bows out of MCI bidding

Telco cites shareholder's best interests as reason not to keep competing for MCI

Qwest Communications said it is no longer in the "best interests" of the company to continue competing with Verizon Communications in a bidding war to acquire MCI.

Qwest, in a statement released Monday, bowed out of the competition for MCI after being rejected multiple times in its efforts to acquire MCI. Early Monday, MCI's board of directors reiterated their decision to merge with Verizon after Verizon increased its bid to $26 per share for MCI. Verizon's bid was still $4 less per share than Qwest's April 21 bid of $30 per share, worth a total of $9.9 billion.

"It is no longer in the best interests of shareowners, customers and employees to continue in a process that seems to be permanently skewed against Qwest," Qwest said in its Monday statement. "Unfortunately, the latest in a string of decisions reconfirms what we have believed all along: that MCI never intended to negotiate in good faith with Qwest nor maximize shareowner value."

On March 29, Verizon offered a bid of cash and stock worth at least $23.10 per MCI share, an offer that MCI's board recommended to shareholders, despite a higher standing bid from Qwest. After Qwest offered cash and stock worth $30 per share, MCI's board acknowledged that Qwest's offer was superior, but did not change its recommendation to shareholders.

Officials at Verizon and MCI have championed their deal as a better fit of complementary services and finances. Verizon's debt at the end of 2004 was $39.3 billion, but its yearly revenue was $71.3 billion. Qwest had a full-year revenue of $13.8 billion for 2004, with a debt of $15.3 billion at the end of the year.

Qwest, in its statement, said concerns about its finances were overblown. Qwest reduced wireline facility costs by $600 million, or 18 percent, in 2004, the company said, and the company expects to beat analyst expectations in a quarterly earnings report Tuesday.

Representatives of Qwest, MCI and Verizon did not immediately respond to requests for comments.

Even though Qwest withdrew from the bidding, it would have time to come up with a new offer in the year until the Verizon and MCI deal closes, said Jeff Kagan, an independent telecom analyst.

"A lot can happen in a year," Kagan said in an e-mail. "Qwest might come back, or another company might jump into the process. I won't consider this deal a done deal until the paperwork is signed, which is probably a year away."

An MCI acquisition would allow Verizon to broaden its reach to large business customers, Kagan added. MCI's nationwide IP (Internet Protocol) network will allow Verizon to offer new services to businesses and smaller customers nationwide, he said.

Kagan called the competition between Qwest and Verizon "one of the most interesting bidding wars in years."

"MCI never seemed to take Qwest's bids seriously, but at least they can say the price is higher than before the bidding war," he added. "Verizon has got to be glad this battle is over. But is it over? There is nothing stopping a war for MCI to bubble back up again until it is acquired roughly a year from now."