May 2, 2005 New York, NY, Ashburn, VA, and Denver, CO -- Verizon has agreed with MCI to further amend the terms of the February 14, 2005 agreement to acquire MCI. According to a press release, as with the original offer and the revised bid of March 29, MCI's board of directors is unanimously recommending its shareholders to approve the amended agreement.
Under the amended agreement, each MCI share would be exchanged for cash and stock worth at least $26.00, consisting of cash of $5.60, expected to be paid promptly upon approval of the transaction by MCI's shareholders, plus the greater of 0.5743 Verizon shares for every share of MCI Common Stock, or a sufficient number of Verizon shares to deliver $20.40 of value. Under this price protection feature, Verizon may elect to pay additional cash instead of issuing additional shares over the 0.5743 exchange ratio.
"The evolving nature of the telecommunications industry requires that effective competitors have financial strength and a full array of offerings," remarks Ivan Seidenberg, Verizon's chairman and CEO. "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."
The transaction requires approval by MCI's shareholders, and regulatory approvals, which the companies expect to obtain in approximately a year. The proxy statement is currently under review by the SEC; the companies expect a shareholder vote by this summer.
"We note MCI's concerns about the impact on its business of the present uncertainty about its future," concludes Seidenberg. "Verizon is committed to a business plan for MCI that will achieve cost savings in an orderly fashion, while maintaining the integrity and scope of MCI's services. We believe Verizon's commitment to build upon MCI's strengths will effectively address the concerns expressed by MCI's customers."
For its part, MCI today announced that its board of directors has unanimously determined that the revised offer from Verizon is superior to the offer received from Qwest Communications on April 21. According to a press release, in making its determination and in assessing the latest offers from Verizon and Qwest, MCI's board carefully weighed the expected range of potential values for MCI's shareholders under each offer, as well as the risks to achieving those values.
According to the release, in comparing the financial terms of Verizon's revised offer to Qwest's offer, MCI's board considered the following factors, among others: the changing competitive nature of the telecommunications industry and the expected competitive position of a combined Verizon/MCI versus a combined Qwest/MCI; the increasing need for scale and comprehensive wireless capabilities; reduction of access costs; the level and achievability of synergies; the size of Qwest's contingent liabilities and the risks associated with those liabilities; the range of possible values for tax savings that could result from Qwest's net operating losses; relative strengths of Verizon's and Qwest's capital structures; the ongoing ability to sustain network service quality both prior to consummation and in connection with achieving promised synergies; the capacity and commitment to and invest in new capabilities, and ensuring ongoing customer confidence among MCI's large enterprise and government customers.
In addition, MCI's board noted that a large number of MCI's business customers had indicated that they prefer a transaction between MCI and Verizon, rather than a transaction between MCI and Qwest. Additionally, according to the board, as their contracts come up for renewal, a number of MCI's customers also requested rights to terminate their arrangements with MCI in the event of a Qwest transaction. These customer concerns, according to the board, posed risks in connection with a Qwest transaction that the board felt 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.
"From the standpoint of risk versus reward, Verizon's revised offer presents MCI with a stronger, superior choice," explains Nicholas Katzenbach, MCI board chairman. "Shareholders receive enhanced value with greater assurance that the transaction will create additional shareholder value."
In light of the MCI board's determination, Qwest today released the following statements:
"We believe that the decision of the MCI board to once again favor Verizon is another example of that board's failure to accept the offer that maximizes shareowner value. We do note that the declaration of 'superiority' for our $30 offer contained no discussion of the factors the MCI board now describes as reasons $30 is not deemed greater than $26.
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.
It appears that MCI's board of directors has surrendered control of the bidding process once again. By accepting a lower offer, without even contacting Qwest, and by reportedly allowing Verizon to instruct MCI to impugn Qwest, it is only fair to conclude that MCI is more interested in bending to Verizon's will than serving its shareholders."
On March 29, MCI and Verizon amended their merger agreement. Under that agreement, each MCI share would receive cash and stock worth at least $23.10, comprising $8.35 in cash, as well as the greater of 0.4062 Verizon shares for every share of MCI Common Stock or Verizon shares or cash valued at $14.75.
On April 21, 2005, Qwest presented MCI with a revised offer comprised of $16.00 in cash, and 3.373 Qwest shares (subject to adjustment under a collar which fixes the value of the Qwest shares at $14.00, provided Qwest's share price is between $3.32 and $4.15) per MCI share.