UPDATED: MCI (Quote) has agreed to merge with Verizon
(Quote) after the Baby Bell increased its bid by $1 billion, the
companies said this morning.
The new $7.6 billion price tag is still lower than Qwest's (Quote)
$8.45 billion proposal -- however, Ashburn, Va.-based MCI thinks its long-term
prospects are better with Verizon.
"We believe Verizon's substantial increase in its offer, the strength of its
competitive position, and the financial certainty at close make this offer
compelling to our shareholders, customers and employees," MCI Chairman
Nicholas Katzenbach said in a statement.
The merger, which requires approvals from shareholders and regulators, will
create a telecom that's strong in local consumer services as well as
business and government accounts.
The revised agreement also raises the breakup fee. If this deal falls
through, MCI will pay Verizon $240 million, which is up from $200 million in the
previous proposal.
The decision to stay with New York-based Verizon is a blow to Qwest (Quote), which made an aggressive run at MCI in hopes of becoming a
national player in a consolidating market.
In addition to a higher price, Qwest argued that a Qwest-MCI combination
would offer more synergies and could clear the regulatory process sooner --
claims that Verizon disputed.
"We respect the right of Verizon to change the composition and value of
their bid, but we still believe our proposal creates superior value for
shareowners," Qwest said in a statement today. "We are going to assess the
situation and determine what is in the best interests of shareowners,
customers and employees."
On Monday, Denver-based Qwest set an April 5
deadline for its takeover bid. But MCI, which previously agreed to a
$6.7 billion deal with Verizon before Qwest burst in, didn't need nearly
that long.
Qwest and Verizon covet MCI because of its large IP data-service deals with
government agencies and corporations. And with the pending merger of SBC
(Quote) and AT&T (Quote), neither wants to be left behind by
the wave of industry consolidation.
The Baby Bells consider those long-term, high-margin contracts crucial to
their future prosperity, as cable operators, VoIP upstarts and wireless
carriers try to hone in on their traditional businesses.
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