MCI’s board on Friday reopened negotiations with Qwest after the Denver-based phone company increased its takeover offer to $8.9 billion.
MCI’s board has already accepted a $7.5 billion bid from Verizon, which is proceeding with plans to call for an MCI shareholder vote.
Qwest’s bid is 19 percent higher than Verizon’s offer.
Qwest said it would withdraw its latest offer by midnight Tuesday, putting increased pressure on MCI’s board, which accepted a $7.5 billion offer this week from Verizon.
Several large MCI shareholders expressed approval of Qwest’s move, anticipating that bidding may continue.
“The (MCI) board needs to call a timeout here and take a very, very, very serious fresh look at this bid,” said Steve Cohen, from the New York- based hedge fund Kellner, DiLeo Cohen and Co.
MCI said Thursday that its board will review Qwest’s latest offer and “respond accordingly.”
MCI, based in Ashburn, Va., said it accepted Verizon’s bid based on financial stability. But MCI has come under fire previously for spurning Qwest bids that are higher than Verizon’s.
Qwest, which has raised the prospect of launching a hostile takeover bid for MCI, responded angrily to media reports Thursday that Verizon may enact a clause in its MCI agreement to force a prompt shareholder vote on the Verizon-MCI merger bid.
“Verizon has wrested the future of MCI and taken control of the process,” said Gary Lytle, Qwest’s top lobbyist, based in Washington. “This appears to be the abdication of MCI’s duty to its shareholders.”
The bid increases Qwest’s offer from $8.3 billion to $8.9 billion, about half of which is cash. Qwest also doubled the “collar,” a buffer that protects MCI investors if Qwest’s stock drops.
MCI’s stock closed Thursday at $24.90, up 45 cents. It is now well above Verizon’s offer price of $23.10 per share and below Qwest’s current offer of $27.50.
Those offer prices no longer include a 40-cent-per-share dividend paid by MCI to its shareholders in mid-March.
Some analysts question Qwest’s escalating bids.
“This is too expensive for Qwest,” said Donna Jaegers of Denver-based Janco Partners.
MCI’s deal with Verizon, the dominant local-phone company in the eastern United States and a top wireless operator, values MCI at $23.10 per share, consisting of $8.35 in cash and the remainder in Verizon shares.
Qwest not only increased its offer to $27.50 per MCI share, up from $25.60, but raised the cash portion of the bid to $13.50 per share from $10.10 in the prior offer.
Both Qwest and Verizon have contracted proxy firms, which will campaign MCI shareholders if Qwest goes hostile.
In its new offer, Qwest also left open an option to replace $2 billion in cash with stock before a Qwest-MCI deal closes. If Qwest stock rises, this allows Qwest to buy back its stock at a lower price – and keep the difference. Qwest, the country’s fourth-largest local telephone company, needs MCI’s $5 billion in cash holdings and rich portfolio of corporate clients.
Verizon is worth $98 billion, whereas Qwest is worth $7 billion and has $17 billion in debt.
The Associated Press contributed to this report.
Staff writer Ross Wehner can be reached at 303-820-1503 or rwehner@denverpost.com .
