The increased offer from Verizon Communications Inc. is still less than the $30 a share that Qwest Communications International Inc. has offered.
But MCI's board has favored Verizon's past offers even though they were lower than what Qwest was offering because of Verizon's larger size and presumed healthier prospects.
Under the sweetened deal with Verizon, each MCI share would be exchanged for cash and stock worth at least $26, consisting of $5.60 in cash plus the greater of 0.5743 Verizon shares for every common share of MCI 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 added shares over the 0.5743 exchange ratio.
New York-based Verizon had previously agreed to buy MCI by for $23.10 per share, but MCI declared more than a week ago that the Qwest offer was superior although it stopped short of accepting the Qwest bid.
Qwest has said its nearly $10 billion offer will be withdrawn at midnight on Monday night if MCI's board does not officially switch its support away from a deal with Verizon by that time.
In a statement on Monday embracing the latest Verizon offer, MCI said that MCI shareholders will benefit from a "floor" of $20.40 on the value of stock to be delivered in the deal as well as from the upside potential of an increase in Verizon's stock price.
In addition, 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. As their contracts come up for renewal, MCI said 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.
"From the standpoint of risk versus reward, Verizon's revised offer presents MCI with a stronger, superior choice," said Nicholas deB. Katzenbach, MCI chairman. "Shareholders receive enhanced value with greater assurance that the transaction will create additional shareholder value."
Ivan Seidenberg, Verizon's chairman and CEO, said, "We note MCI's concerns about the impact on its business of the present uncertainty about its future. 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."
The transaction requires approval by MCI shareholders and regulatory clearance, which the companies are targeting to obtain in about a year. The proxy statement is currently under review by the SEC, and shareholders are expected to vote this summer.
