After a furious 10 weeks of dealmaking, deadlines and drama, Qwest’s lawyers and bankers are now quietly talking with MCI’s advisers about terms for a potential merger.
At issue are two basic demands that MCI’s board made – and Qwest rejected – on April 5: increase the offer price from $27.50 to $30 per MCI share and do the deal even if MCI’s business suffers before the deal closes.
MCI’s lawyers called Qwest on Friday to discuss a proposed “material adverse change,” or MAC, clause. This would force Qwest and its banks to complete the deal even if MCI’s year-to-year cash flow were to drop 20 percent before the deal closes.
The clause would make it more risky for Qwest bankers and other potential private investors.
Verizon’s $23.10-per-share merger agreement for MCI, which is headed to a MCI shareholder vote in July, does not include a 20 percent MAC clause. MCI’s board claims that its customers are comfortable with Verizon but may defect if Qwest, a less financially secure company, wins the takeover battle.
Qwest declined to comment on Tuesday.
Its silence may be golden.
“When (Qwest was) not getting what they wanted, they were letting everyone know it,” said Scott Cleland, chief executive of the Precursor Group research firm. “Silence suggests they are having real discussions.”
However, MCI’s board may be using Qwest to get better terms from Verizon and avoid ire – and potential litigation – from MCI’s largest shareholders. The shareholders are upset that Verizon is buying out MCI’s largest shareholder, Carlos Slim, for a premium.
“(MCI is) flirting with Qwest right now to make Verizon agree to pay everyone what they already paid Carlos Slim,” said Donna Jaegers, of Denver-based Janco Partners.
Some analysts say that Qwest’s $17.3 billion in debt prevents it from raising its bid to $30 per share. Instead, Qwest is talking with investors such as Legg Mason’s Bill Miller to raise up to $1 billion in cash for a sweetened bid.
If Qwest wins approval from MCI’s board, Verizon would have five days to make a counteroffer. Even if MCI’s board recommends Qwest, Verizon can force the July MCI shareholder vote.
Staff writer Ross Wehner can be reached at 303-820-1503 or rwehner@denverpost.com.
