Verizon Buys MCI By Under Bidding Qwest
Monday, February 14, 2005SUSIE GHARIB: Another giant corporate marriage in the telecom industry today. Verizon Communications, the nation`s largest phone company, announced it is paying $6.7 billion for MCI. In agreeing to the cash-and-stock offer from Verizon, MCI spurned a sweeter offer from Qwest Communications. Today`s deal comes just two weeks after SBC agreed to buy AT&T. We have two reports tonight looking at the Verizon-MCI hookup and why telecom companies are rushing to the altar. We begin with Scott Gurvey in New York.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Analysts say that the purchase of MCI was a defensive move in the wake of Qwest Communications` bid for the nation`s second largest long distance company and its 14 million residential and one million business customers.
RICK BLACK, TELECOM ANALYST, BLAYLOCK & PARTNERS: It is a good deal for Verizon simply that they get to take one of the prime assets off the marketplace and put it into its stables sort of in letting another company do so. So from that perspective, it`s a good deal. Does Verizon have to make the deal at this point in time? We didn`t think that it had to. But I think that it was sort of pushed into play by the fact that Qwest went after MCI earlier.
GURVEY: Blaylock and Partners has done business with Verizon in the last year. Without MCI, Verizon faced the prospect of being a distant also- ran to SBC, which two weeks ago announced a deal to buy AT&T for $15 billion. Today`s deal is a combination of stock, cash, and dividends valuing MCI at $20.75 a share. At that price, there is no premium over last Friday`s close. The price is also said to be half a billion dollars less than the offer from Qwest. Some MCI shareholders were apparently unhappy and sold shares on the news. Verizon shares also fell on word the deal will dilute earnings for three years. And there is speculation Qwest might make another bid.
TODD ROSENBLUTH, TELECOM ANALYST, STANDARD & POOR`S: We think it`s possible that Qwest is still interested in MCI assets. We think Qwest needs to make a strategic decision as to where to go and MCI is still their favorite asset, so there is still speculation out there that they may get into the ring.
GURVEY: Verizon insists that it is a much better suitor than the much smaller Qwest and says the deal contains a breakup fee to discourage other bidders.
VOICE OF IVAN SEIDENBERG, CHMN & CEO, VERIZON: I`m very comfortable that we have a compelling offer for shareholders and I`m not particularly concerned about somebody coming in over the top. There`s a very high hurdle for them to meet to make that happen.
GURVEY: Verizon expects to squeeze as much as $1 billion in annual operating costs out of the combined companies. That translates into at least 7,000 layoffs. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
STEPHANIE WOODS, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Stephanie Woods in Washington. Just a few more mergers and the country will be down to two giant regional phone companies, with Verizon the juggernaut of the east and SBC the juggernaut of the west.
PAUL GLENCHUR, TELECOM ANALYST, STANFORD WASHINGTON RESEARCH GROUP: Maybe Qwest joins with a Bell west and Bellsouth becomes part of bell east, and we just have two large bells carving up the country. It`s possible.
WOODS: For now, big corporate customers are relieved, because financial scandals at MCI and Qwest and weak balance sheets in the industry left few strong choices for service.
HANK LEVINE, ATTORNEY, LEVINE, BLASZAK, BLOCK & BOOTHBY: In the short term, this is clearly good news. We are going to get stronger match-ups with stronger competition. In the long term, the jury is out, because if we do end up with east and west, or two mega-carriers, we will have problems in the competitive marketplace. If we do end up with a third strong one, this could end up being a big win in the sense of stronger carriers, but also strong competition.
WOODS: So far, the Bush administration has taken a market-based approach to competition, viewing new technologies like broadband over power lines or wi-fi as the force to keep prices and service competitive. Former FCC Commissioner Reed Hundt, who once called a Bell long distance merger unthinkable, says regulators now have an opportunity to ensure competition.
REED HUNDT, FORMER CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION: It`s about whether these mergers are just going to be rubber stamped or whether the government is going to look at them in a way that creates some new paradigm for competition.
WOODS: Mergers aren`t the only shakeup in the telecommunications industry. Policy could be changing, too. FCC Chairman Michael Powell is stepping down and there are new telecomm leaders in Congress and already there are discussions about rewriting the 1996 telecom act. Stephanie Woods, NIGHTLY BUSINESS REPORT, Washington.
