Richard Notebaert, chief executive of Denver-based Qwest Communications International Inc., said today that the telephone company has ended its multibillion-dollar bid to acquire MCI Inc. and is now looking at alternatives ranging from partnerships to other acquisitions.
“We aren’t looking at MCI. That’s over,” Richard Notebaert told about 200 shareholders gathered for an annual meeting in which he and two other directors were re-elected to the board.
Notebaert declined to be specific about possible future actions.
The meeting came less than a month after Qwest withdrew a $9.85 billion bid for MCI, leaving the long-distance company to pursue a lower-priced deal to be purchased by Verizon Communications Inc. for just $8.54 billion in cash and stock.
In rejecting Qwest’s overtures, MCI’s board repeatedly expressed concern about Qwest’s financial health.
“Frankly, we felt from day one that it was kind of skewed against us,” Notebaert said of the contentious three-month bidding process. “There really wasn’t an effort to negotiate in good faith.”
Notebaert also said the company still hears from MCI shareholders who believe that Qwest’s higher bid should have won.
He said Qwest spent at least $5 million on the failed bid.
At a stockholder meeting earlier this month, more than a quarter of MCI’s shares were withheld in the re-election of the company’s directors, a protest of their decision to accept the Verizon offer.
However, that protest fell considerably short of the majority support that Qwest claimed it had found in surveys of MCI shareholders.
MCI, based in Ashburn, Va., is expected to hold a shareholder vote on the Verizon deal this summer.
Qwest, the dominant provider of local service in 14 Midwestern and Western states, is looking for a way to increase revenue and shrink its $17 billion debt as it faces increasing competition from cell phones and Internet-based calling.
The company viewed a merger with MCI and its strong balance sheet as a way to achieve that goal, while also acquiring a lucrative roster of business customers and cutting costs by combining the two companies’ national fiber-optic networks.
Without that deal, Qwest may look to acquire a smaller telecommunications firm that has little debt.
The key will be to find a company that can continue to grow after a union with Qwest, Janco Partners Inc. telecommunications analyst Donna Jaegers said.
With cable companies gearing up Internet phone services, “They’re in a tough spot and they’ve got about two years to try to make it easier,” Jaegers said.
During the meeting, three shareholder proposals were rejected:
– A policy requiring members of certain committees of the board to qualify as independent under a definition outlined by the Council of Institutional Investors.
– A policy to require shareholder approval of future supplemental executive retirement plans and of certain benefits for senior executives.
– A policy requiring the board to pursue legal remedies to recover performance-based compensation for executives in the event of a substantial restatement of financial results.
Shareholders approved the re-election of Notebaert, Linda Alvarado and Cannon Y. Harvey to the board of directors; and the ratification of KPMG LLP as independent auditor.
Mimi Hull, president of the Association of U S West Retirees, complained that Qwest is paying the legal bills for former executives such as former CEO Joseph Nacchio, now charged with financial fraud in a civil case brought by the government.
Notebaert responded that Qwest is required by its bylaws to pay the legal fees.
Qwest, formed in 1999 with its acquisition of former Baby Bell U S West Inc., agreed last year to pay a $250 million fine to settle civil charges by the Securities and Exchange Commission without admitting wrongdoing. The SEC had accused Qwest of a “massive financial fraud” for falsely reporting sales or trades of capacity on its fiber-optic cables as recurring revenue.
Shares of Qwest rose 11 cents, or 3 percent, to close at $3.78 on the New York Stock Exchange.
