http://www.washingtonpost.com/ac2/wp-dyn/A40350-2005Apr9
washingtonpost.com
Verizon Agrees to Buy Stake Of MCI's Biggest Shareholder
$1.1 Billion Purchase an Attempt to Shut Out Qwest's Bids
By Yuki Noguchi
Washington Post Staff Writer
Sunday, April 10, 2005; Page A12
Verizon Communications Inc. said yesterday it agreed to pay $1.1
billion in cash to purchase the shares of MCI Inc.'s largest
shareholder in an attempt to lock up its deal to buy MCI and shut out
rival Qwest Communications International Inc.
New York-based Verizon agreed to buy about 43.5 million shares -- or
13 percent of MCI's stock -- from Mexican telecom magnate Carlos Slim
Helu. At $25.72 a share, MCI's market price at the time of the
agreement, the price is higher than the $23.10 per share Verizon has
offered to pay other MCI shareholders to acquire the company.
It's the latest chess move between Verizon and Qwest, two regional
phone companies locked in a two-month battle to acquire MCI of
Ashburn. So far, MCI's board of directors has sided with Verizon,
citing that company's greater resources and financial strength, even
though Qwest is offering to pay substantially more.
Analysts described Verizon's move as a significant development, but
some said Qwest could still muster support for its offer.
Qwest has sweetened its bid three times in its attempts to win the
support of the MCI board, forcing Verizon to raise its original offer,
but the MCI board spurned Qwest each time. For the past week, Qwest
has been considering ways to pursue a hostile offer, including seeking
the backing of MCI shareowners to vote down the proposed merger with
Verizon.
In buying Slim's shares, Verizon sought to reduce Qwest's maneuvering
room. The deal "was an opportunity for us to purchase a block of
shares under unique circumstances and is an important step forward in
our acquisition of MCI," Verizon chairman and chief executive Ivan
Seidenberg said yesterday in a statement. The purchase of Slim's
shares, which must be approved by regulators, is expected to close in
several weeks, the company said.
Verizon will not be able to acquire more shares one block at a time
from MCI investors because of a "poison pill" provision in MCI's
charter that makes it prohibitively expensive for a single entity to
accumulate more than 15 percent of the company's shares.
Verizon's deal with Slim came after Denver-based Qwest said a survey
it commissioned showed that a majority of MCI shareholders supported
Qwest's most recent offer. The company declined to disclose details of
that survey but said Slim was not among the investors it had been
counting on to support the Qwest offer of $27.50 a share, or a total
of $8.9 billion, in cash and stock. Verizon's offer totals $7.65
billion in cash and stock.
"I don't think it's over for Qwest at all," said Martin Hyman, an
independent telecommunications consultant. "It was a very clever move
on Verizon's part. Obviously, it gives Verizon additional support, but
this is a very, very critical acquisition from [Qwest's] standpoint."
The company needs MCI's corporate customer base and its cash, he
said. "It's do or die."
Striking a deal with a single shareholder may create pressure for
Verizon to increase its bid to the rest of MCI's shareholders, many of
whom have spoken in favor of Qwest's offer or have demanded that MCI
seek a better deal from Verizon.
"Verizon has basically told the world what they think MCI shares are
worth, and what they've said is that they're worth more than $23.10,"
said Patrick Comack, an analyst with Zachary Investment Research in
Miami. If Verizon offers what it's paying to Slim to the rest of MCI's
shareholders, that could put MCI out of Qwest's reach, Comack said. "I
think today's move may make Qwest say, 'Uncle.' "
Calls and e-mails requesting a comment from Slim were not returned
yesterday, although his office released a statement confirming the deal.
In a statement responding to Verizon's latest move, Qwest said Verizon
was trying to drive a wedge between shareholders.
"By entering into this deal with Mr. Slim, Verizon has both created
two classes of shareholders and called into question the MCI board's
previous determination that Verizon's lower offer to the other MCI
shareholders was superior and fair," the statement said.
Qwest spokesman Tyler Gronbach said the company previously had its own
negotiations with Slim. Gronbach said Qwest is considering all of its
options, including a higher bid for MCI.
Verizon spokesman Peter Thonis declined to comment, as did MCI spokesman
Peter Lucht.
Copyright 2005 The Washington Post Company
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