Tuesday, April 5, 2005 | 9:28 a.m.
NEW YORK -- Verizon threatened Monday to drop its bid for MCI if MCI's board declares Qwest's competing offer to be superior.
The message, in a letter from Verizon CEO Ivan Seidenberg, puts pressure on MCI's board to choose -- once and for all -- between Qwest and Verizon as a merger partner. Verizon is offering $7.6 billion in stock and cash; Qwest's latest offer of nearly $9 billion exceeds its entire market capitalization. Qwest has given MCI until tonight to take or leave its offer.
Qwest has been pushing aggressively to break up the merger deal that Verizon and MCI announced Feb. 14. At the time, Verizon was offering $6.7 billion in stock and cash, and Qwest was offering $8 billion, also in stock and cash. MCI said it was willing to accept Verizon's smaller offer in light of Verizon's greater strength and stability compared with Qwest.
Verizon, the USA's largest telecommunications company, also has a majority stake in Verizon Wireless, the No. 2 wireless carrier behind Cingular.
Qwest, by contrast, has $17.5 billion in debt and $14 billion in annual revenue. Its stock price has fluctuated in the past year -- no small concern, given the makeup of Qwest's stock-and-cash offer.
MCI's board on Friday reopened merger talks with Qwest, the second time it has done so in six weeks.
In its letter Monday, Verizon put the MCI board on notice that it would not be dragged into a further bidding war:
"If the MCI board, capitulating to Qwest's artificial deadline, declares this ($9 billion) bid to be 'superior,' it would seem to us that the decision-making process is being driven by the interests of short-term investors rather than the company's long-term strength and viability. Should this occur, we would no longer be interested in participating in such a process."
Under the terms of its latest offer, Verizon could force a vote by MCI shareholders, regardless of what MCI's board does with Qwest's offer. But that's unlikely. Verizon has no interest in spending a year -- typical for a big merger -- trying to close a deal that lacks support from MCI's management.
Fred Lipman, a partner at Blank Rome in Philadelphia, says the possibility Verizon will drop its offer for MCI illustrates the risk that boards take in trying to squeeze out every nickel in a bidding war.
"You can go overboard," he says. "The real question a board has to ask itself is this: Are you going so far that you're driving away a solid bidder for pie in the sky?"
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