Qwest got some good news Tuesday in its bid for long- distance carrier MCI when a government agency said the Denver-based phone company won’t be barred from getting federal contracts.
The General Services Administration, which launched a review of Qwest’s government contracts in 2002, informed the company of its decision in a letter.
The GSA review was sparked by the indictment of four former Qwest employees in connection with a 2001 sale of services and equipment to Arizona schools that improperly inflated Qwest’s revenues.
In choosing Verizon’s $6.75 billion offer over Qwest’s $8 billion bid, Ashburn, Va.- based MCI’s board considered the possibility that Qwest could lose the right to contract with the government, among other things, one major MCI shareholder said.
“They went around telling everybody, ‘How the hell can we talk to somebody who is being threatened by the GSA to be suspended when the GSA is our largest customer,”‘ said the shareholder, who spoke on condition of anonymity.
Government contracts make up more than $1 billion of MCI’s $21 billion total revenues, MCI spokesman Peter Lucht said.
Qwest plans to submit a new bid that is widely expected to have a similar value to its earlier $8 billion cash and stock offer. The bid could include more cash, less stock and a mechanism that would protect MCI shareholders from getting less than promised if the value of Qwest’s stock dropped between the time a deal was reached and when the merger closed.
Facing pressure from major shareholders, who are unhappy about MCI’s acceptance of a lower bid, and lawsuits from four smaller shareholders, MCI is likely to give Qwest another look, the shareholder said.
“If they don’t, my guess is that they should be prepared to be sued by people that own more than 500 shares,” the shareholder said.
MCI’s shares rose 34 cents, to $22.65, and Verizon’s climbed 7 cents, to $35.38, on Tuesday. Qwest’s shares dropped 1 cent to $3.94.
Staff writer Tom McGhee can be reached at 303-820-1671 or tmcghee@denverpost.com.
