Qwest to improve offer, as battle for MCI hots up

According to the Financial Times, Qwest Communications is preparing to launch a revised USD8 billion bid for MCI, the US long-distance operator that has become the subject of a fierce battle for control. Qwest hopes that the bid will be strong enough to force MCI’s board to reconsider its decision made ten days ago to sell the company to Verizon for USD6.75 billion in stock and cash. Since the decision was made MCI’s share price has risen above the value implied by Verizon’s offer, signalling that WallStreet is expecting Qwest to be successful in snatching the company away from Verizon, or that the latter will raise its bid. MCI shareholders appear to be divided on the issue; some maintain that the board made the wrong decision in accepting Verizon’s lower bid, while others hold the view that Qwest’s inferior financial situation makes Verizon the more suitable candidate.

Following numerous reports in the press on the detrimental effects of consolidation by the major US telcos, public sentiment towards mega-mergers appears to be cooling. Indeed, riding on the back of this wave, Qwest Chairman and CEO Dick Notebaert has been stressing the negative effects of the SBC/AT&T and Verizon/MCI deals, which – he claims - if they are allowed to go ahead would give the pair control of 80% of the corporate telecoms market. If however, Qwest managed to get control of MCI, the picture would be more of a three way split, with SBC/AT&T controlling 44% of the market, the stand-alone Verizon taking 21% and a combined Qwest/MCI taking 20%.