It’s like Scheherazade saying to the Sultan, “OK, that’s it. No more stories”. An increased bid of US$8.45bn by Verizon for MCI, has been accepted by the shop-soiled MCI, in preference to an earlier US$9.75bn bid by Qwest.

The battle for MCI, which the largest of the former ‘Baby Bells’ appears to have won at the expense of the smallest, hinged on the fiscal stability of its bid — up from an original US$6.7bn with which, back in February, it attempted to trump Qwest’s earlier US$6.3bn offer. While Qwest continued to increase its wager, Verizon held firm until it delivered its apparent knockout blow.

Winners after all?
MCI’s Board could be said to have done a tidy bit of business on behalf of its shareholders by holding out for a third more in value than originally tabled three months ago.

"From the standpoint of risk versus reward, Verizon's revised offer presents MCI with a stronger, superior choice," said Nicholas deB. Katzenbach, MCI Board Chairman, on Monday. "Shareholders receive enhanced value with greater assurance that the transaction will create additional shareholder value."

MCI’s statement also said, “MCI's Board noted that a large number of MCI's most important business customers had indicated that they prefer a transaction between MCI and Verizon rather than a transaction between MCI and Qwest. Additionally, as their contracts come up for renewal, a number of customers have also requested rights to terminate their arrangements with MCI in the event of a Qwest transaction. These customer concerns, in the Board's view, pose risks in connection with a Qwest transaction that could negatively impact the value of the equity stake in a combined Qwest/MCI to be received by MCI's shareholders under Qwest's offer.”

Integration ahead
Verizon’s market cap is some twenty times greater than that of Qwest. In theory, this means that it can absorb what it requires from MCI with a minimum of fuss, while Qwest would be taking on an MCI valued by Qwest’s own calculations at some 50% more than its current size.

On Monday Ivan Seidenberg, Verizon’s chairman and ceo, said, “the evolving nature of the telecommunications industry requires that effective competitors have financial strength and a full array of offerings. Verizon is a leading national communications provider with a stable balance sheet, a premier national wireless business, and a plan to invest in MCI so that MCI’s present and future customers can receive world-class products and services.”

Unsurprisingly, Qwest’s official statement on Monday saw things differently: “it is no longer in the best interests of shareowners, customers and employees to continue in a process that seems to be permanently skewed against Qwest. We pursued MCI with tenacity and discipline and feel strongly that our bid would have brought far more value to MCI shareholders. Unfortunately, the latest in a string of decisions reconfirms what we have believed all along: that MCI never intended to negotiate in good faith with Qwest nor maximize shareowner value.”

Sleep perchance to dream
If a company (or its lawyers) have nothing better to do for three months, a contested takeover, with its twists and tantrums, is bound to keep boredom at bay… while inflicting it in heaps upon the rest of us. MCI was still at a low ebb when SBC bought out AT&T, at which point MCI was suddenly ‘in play’ according to the offbeat rules of M&A activity . All this even while former MCI chief Bernard J. Ebbers was being found guilty of various levels of corporate misdemeanour and still faces up to 85 years in prison.

What will we do without our regular fix of this takeover soap opera? Well it’s not over yet. MCI shareholders must still vote on the deal while the period set aside for regulatory approval effectively makes it ‘open season’ for any alternative bounty-hunters. Always assuming that MCI qualifies as ‘bounty’.
Jim Chalmers