MCI’s chief executive said his company will continue working toward a union with Verizon even as its board evaluates Qwest’s latest offer.
CEO Michael Capellas said Friday that he is comfortable with the board’s earlier decision to accept New York-based Verizon’s $6.75 billion offer over Qwest’s $8 billion bid.
“Obviously we entered into it, so we believe in it,” he said, answering a question from an analyst. It came during a teleconference in which Ashburn, Va.-based MCI reported its year-end financials.
Denver-based Qwest sweetened its original $8 billion cash and stock offer Thursday by accelerating the payout to MCI shareholders and adding a mechanism to lock in the price of the deal if Qwest stock falls.
One major shareholder, Leon Cooperman of Omega Advisors, told Capellas during the call that Qwest’s latest offer disappointed him. But he also questioned MCI’s decision to take Verizon’s lower bid, which amounts to $20.75 per share, compared with the $24.60- per-share Qwest offer.
“I always listen to your remarks, and I just get so excited about the prospects of that business. Then I see the price that we’re willing to sell it for, and it doesn’t really compute,” Cooperman said.
MCI reported a loss of $3.89 billion in 2004. Revenue for the year was $20.7 billion.
For its fourth quarter, MCI said it lost $32 million, compared with profit of $22.2 billion in 2003. That fourth- quarter profit in 2003 was associated with a gain recorded as part of its bankruptcy reorganization.
Cooperman is one of three major shareholders who together control about 11 percent of MCI’s stock and have objected to the Verizon deal.
MCI has told its shareholders it picked Verizon because the company has a clean balance sheet, a wireless division and more solid prospects for growth than Qwest, which is struggling with $17.2 billion in debt.
Several smaller MCI shareholders already have sued the company, and one major shareholder who requested anonymity told The Denver Post that big stockholders would probably follow suit if the board didn’t give Qwest a fair hearing.
If a judge ever hears the suits, legal experts said, MCI would have to prove that whatever decision it made was in the best interest of shareholders.
“But these suits aren’t likely to be successful when a board chooses a lower bid if there are legitimate business justifications,” said James Cox, a professor of securities law at Duke University.
“The only real chance that Qwest has is to sweeten its offer to cause the directors of MCI to take a deep breath and be reflective about whether they still think it would be in shareholders’ best interest to take Verizon,” Cox said.
A source close to Qwest expressed frustration Friday that MCI had not contacted the company soon after it submitted its latest bid Thursday.
Denver Post wire services contributed to this report.
Staff writer Tom McGhee can be reached at 303-820-1671 or tmcghee@denverpost.com .
