MCI Agrees To Reconsider Qwest's Courtship

MCI on Wednesday issued a statement that said it would "engage with Qwest to review its latest proposal" to acquire the Ashburn, Va.-based telecommunications company.

In early February, Qwest made an initial bid for MCI valued at approximately $8 billion, a bid that was trumped by the Valentine's Day announcement that New York-based Verizon would acquire MCI for a lower amount, about $6.7 billion. Accepting Verizon's offer over a higher bid from Denver-based Qwest was seen as smart business by many investment analysts, who said Verizon was a stronger suitor than debt-shackled Qwest.

Yet Qwest's latest offer includes sweeteners such as protection for MCI shareholders against an up to 10 percent drop in Qwest's share value if a deal goes through.

Regarding the new offer from Qwest, MCI said in the statement that it "will evaluate Qwest's position over the next two weeks" and that it will do so with the blessing of Verizon.

Explaining its initial decision to merge with Verizon, MCI said the following: "Among the factors considered by the MCI board in determining to enter into the merger agreement with Verizon were the board's view of the changing competitive nature of the industry; increasing need for scale and comprehensive wireless capabilities; access economics; the level and achievability of synergies; strength of capital structure; the ongoing ability to sustain network service quality and invest in new capabilities; and ensuring ongoing customer confidence among MCI's large enterprise and government customers."

The decision to reconsider the Qwest offer came less than 24 hours after MCI Chairman Nicholas Katzenbach sent a letter to Qwest Chairman and CEO Richard Notebaert that acknowledged the receipt of Qwest's second offer.

"Over the past seven months, MCI and Qwest have had numerous discussions about possible transactions," Katzenbach said in the letter. "As you know, MCI and Qwest management and strategy teams have had 25 in-person meetings and more than 50 joint conference calls. Also, during this time, the MCI board conducted 26 board meetings in which strategic options, including opportunities with Qwest, were discussed. Throughout this period, Qwest was given substantial access to MCI legal, financial and operational information."

If MCI decides to merge with Qwest instead of Verizon, as many as 15,000 jobs would be shed from Qwest.

Despite being persistent in pursuing MCI, Qwest may not be the right fit for MCI, said financial analyst Victor Schnee, president of Probe Financial Associates, Ironia, N.J. "[Qwest] is promising a lot, but it hasn't fully addressed the messy situation with its own underperforming long-haul business and the associated debt load," Schnee said. "While MCI shareholders have a legitimate interest in trying to extract the best deal they can get, as far as the future of the business is concerned, Qwest-MCI is a dubious proposition."