Two days after MCI accepted a cash-and-stock buyout offer from Verizon Communications valued at US$7.6 billion, rival bidder Qwest Communications International once again sweetened its offer, raising it to around US$8.9 billion.
In a letter sent Thursday to MCI's chairman, Qwest Chairman and Chief Executive Officer Richard Notebaert accuses MCI's board of "a complete abdication of its duties" in accepting Verizon's bid without giving Qwest an opportunity to increase its own offer, as Notebaert says Qwest had previously requested. Qwest filed a copy of the letter with the U.S. Securities and Exchange Commission.
Qwest is now offering US$13.50 cash per share and US$14 worth of Qwest stock, for a total value of US$27.50 per MCI share. The bid includes a provision allowing Qwest to substitute additional cash for stock.
The Verizon offer MCI accepted comprises US$8.75 in cash and Verizon stock valued at US$14.75 per MCI share, for a total consideration of US$23.50 per MCI share. At the time, Qwest was offering US$10.50 cash and US$15.50 in equity per MCI share, for a total value of US$26 per MCI share. MCI's board said it considered telecommunications industry conditions and its suitors' competitive positions in declaring Verizon's bid the superior one.
Qwest's new offer extends a ping-pong-like bidding war that broke out in mid-February, when Verizon agreed to buy MCI in a stock-and-cash deal worth around US$6.7 billion. Qwest, which had also been in discussions with MCI, quickly followed with its own offer, forcing Verizon to increase its bid.
"We think MCI shareholders should receive the highest price available in the market," Notebaert wrote in his letter. Qwest said its offer will be withdrawn April 5 if MCI's board does not by then deem it a "superior proposal," a technical term invoking various clauses in MCI's merger agreement with Verizon.
Should MCI's board be inclined to endorse Qwest's new offer, Verizon can make the companies' break-up painful. The March 29 merger agreement between MCI and Verizon increased to US$240 million the termination fee that MCI would be required to pay under certain circumstances if it backs out of the deal. It also allows Verizon to request an MCI shareholder vote on Verizon's acquisition offer.
The bidding war over MCI began several weeks after SBC Communications announced it would acquire AT&T Corp in a US$16 billion deal. Verizon, Qwest and SBC are three of the four remaining incumbent local telecom carriers that divided up U.S. local telephone service after the government breakup of the old AT&T in 1984.