In a bold move, Qwest on Thursday bumped its bid for long-distance provider MCI to $30 a share and called it a “best and final” offer.
The Denver-based phone company told MCI’s board it will withdraw the $9.75 billion offer at 3 p.m. Saturday if it isn’t declared superior to a far lower bid from Verizon that MCI has already accepted.
“Qwest is really going to the 15th round. They are doing their best impersonation of Rocky Balboa. This has got to irritate Verizon,” said independent telecom analyst Pat Comack.
The move is an indication of how desperately debt- strapped Qwest wants Ashburn, Va.-based MCI’s rich portfolio of corporate and government clients and its roughly $5 billion in available cash.
Qwest’s offer is close to what MCI’s board requested from Qwest on April 5 but didn’t get. Later that day, MCI accepted Verizon’s $23.10-per-share offer, which is headed to a shareholder vote in July.
Qwest’s new offer, which is 30 percent higher than Verizon’s, is too sweet to turn down unless Verizon ups its bid, experts said.
“It forces Verizon’s hand,” said Comack.
MCI said it is reviewing the new offer.
New York-based Verizon said it would “take the necessary steps at the appropriate time to secure shareholder approval and complete our pending transaction.”
One possible Verizon strategy – the so-called “eBay strategy” – would be to increase its bid in the final weeks before the shareholder vote in order to hit Qwest with a final knockout punch.
Verizon has already bought out MCI’s largest shareholder, Mexican billionaire Carlos Slim Helu, for $25.72 a share to gain about 14 percent of MCI shares.
One analyst questions whether Qwest, with a market value of $6.6 billion and debt of $17.3 billion, can afford to pay $30 per share.
“They are pushing this to the limit,” said Donna Jaegers, an analyst with Denver-based Janco Partners. “I think they are paying too much.”
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To mount the latest bid, Qwest pursued a rather creative financing tactic, capitalizing on the discontent many of MCI’s largest shareholders expressed with MCI’s decision to accept Verizon’s lower bid.
Those shareholders were particularly irked that Verizon paid more for Slim’s shares than they’re being offered.
Qwest worked with a group of MCI’s largest shareholders to raise an additional $800 million in cash. Those shareholders own in excess of 13 percent of MCI shares, Qwest said.
Denver financier Philip Anschutz, who owns 17 percent of Qwest, said Thursday through a spokesman that he was not one of Qwest’s new investors.
Under the financing deal, the new investors would reportedly issue a letter of credit now to buy stock in a merged Qwest- MCI on the day the deal closes. That cash would help fund the $2.50 increase in Qwest’s latest offer.
Investors also would agree to hold their stock for a certain period, such as six months, to help stabilize the share price of the new company.
Experts said if Qwest’s bid isn’t accepted, it likely will go hostile by taking its bid directly to MCI shareholders.
Qwest also indicated it has received another $1 billion in committed bank financing, which could be used to integrate the two company’s networks.
One potential stumbling block for Qwest’s latest bid is the fact that it didn’t accept MCI’s full request for what’s known as the “material adverse change,” or MAC, clause. The clause would force Qwest to go through with the deal even if MCI’s business suffers before the deal closes in one year.
Staff writer Ross Wehner can be reached at 303-820-1503 or rwehner@denverpost.com .
Staff writer Aldo Svaldi can be reached at 303-820-1410 or asvaldi@denverpost.com .
