Verizon Communications has agreed to acquire MCI in a deal valued at $6.7 billion, the companies announced Monday, ending weeks of speculation about a likely deal.
Verizon said the acquisition would accelerate its plans to become a significant player in the enterprise services market, giving it a broader reach globally, a suite of advanced Internet Protocol-based services and a large base of business and government customers.
"From a customer perspective, the overwhelming theme is that customers want to have simplified delivery, one-stop shopping and a single point of contact," said Michael Capellas, president and chief executive officer at MCI. "(The deal) increases customer confidence in everything we do. At the end of the day, there's no question, our future is brighter together."
Getting regulatory approval for the deal is likely to take as much as a year, the companies said. Verizon must also win the approval of MCI's shareholders. The boards of directors at both companies have approved the agreement, they said in a statement. The U.S. Department of Justice, the U.S. Federal Communications Commission and several state public utilities commissions must also approve the deal.
Verizon will pay $4.8 billion in shares and $488 million in cash to buy MCI. MCI, meanwhile, will pay its shareowners quarterly and special dividends of $4.50 per share, worth $1.46 billion, bringing the total value of the deal to $6.7 billion, the companies said.
Ivan Seidenberg, Verizon's chairman and chief executive officer (CEO), called the deal "a natural and logical extension of Verizon's strategy to transform our company to serve growth markets and offer broadband technologies." The deal will make Verizon the second largest telecom carrier, behind the merged SBC/AT&T, and will allow the combined company to offer products that are "much more compelling in the marketplace," Seidenberg said during a conference call Monday.
The companies will figure out their branding strategy, organizational structure and other details closer to the completion of the deal, they said. Verizon will take on MCI's net debt when the deal closes, projected to be about $4 billion.
The two companies plan to lay off about 7,000 employees because of the deal, including IT workers, engineers, sales staff and corporate support staff, officials said. Verizon anticipates savings of $500 million in the first year of the deal, and $1 billion a year in the third year and later. Savings will come from job cuts, an IT overhaul at MCI and real estate consolidation, said Doreen Toben, chief financial officer at Verizon.
Officials from both companies said the marriage makes sense by combining Verizon, traditionally a regional local phone service carrier, with MCI, which has focused recently on enterprise and government customers, as well as global IP-based (Internet Protocol-based) services. With an MCI IP backbone that reaches across the U.S. and into more than 140 other countries, Verizon will save about $100 million a year on long-distance carrier charges, Toben said.
The deal comes two weeks after SBC Communications Inc. said it plans to acquireAT&T in a deal worth $16 billion, and is likely to spark a guessing game among industry insiders over possible additional merger deals.
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