This reporter’s been covering the Qwest-MCI-Verizon saga for months now. It can get pretty complicated, but USA Today has printed an excellent Q&A on the basics:
For two months, Qwest has been in relentless pursuit of MCI, hoping to break up Verizon's own deal to acquire MCI.
MCI's board has declared Qwest's latest bid for MCI of $30 a share to be "superior" to Verizon's $23.10 bid. Verizon has until May 3 to raise its offer.
USA TODAY reporter Leslie Cauley explains the tug of war.
Why is Qwest so intent on grabbing MCI for itself?
Qwest, in a word, is desperate. The company, with one of the worst financial profiles in telecom, is eager for a new business strategy. It has a relatively meager $14.8 billion in annual revenue and a gut-busting $17.5 billion in debt. Qwest had originally hoped to buy MCI, in part, to gain access to MCI's $5.5 billion cash hoard. Qwest hoped to use that to help pay off its debt.
Is that still the case?
Not really. Qwest has steadily raised its bid, and each time it has boosted the cash component of its offer. A lot of that cash is coming directly out of MCI's own reserves. According to calculations by Robert Rock, a telecom analyst at John Hancock Advisors, Qwest's latest offer of $30 a share could eat up all but about $58 million of MCI's $5.5 billion in cash. That's not to say Qwest would be cash-poor. Once the transaction closes, Rock says, Qwest would have about $3 billion in cash on hand. That figure includes an infusion of $800 million from unnamed outside investors.
And what about Verizon?
Verizon's financials are rock solid. It's the USA's biggest telecommunications company, with more than $70 billion in annual revenue and a market value of more than $100 billion. It's also the controlling partner in Verizon Wireless, the No. 2 wireless company. Verizon's muscle is a big reason MCI's board had backed a deal with Verizon, even though it was - and still is - offering less upfront value than Qwest.
Why is MCI so enticing as a takeover target?
MCI's real plum is its "enterprise" business - its big corporate and government customers. This lucrative base is exceedingly loyal to MCI. Most of these customers stayed put even when MCI - then known as WorldCom - was in bankruptcy protection.
When's this bidding war going to end?
Unclear. Technically, Verizon has until May 3 to raise its bid. Even if it declines to do so, it has the right to force an MCI shareholder vote on its latest offer. And if Verizon decided to walk away from its merger deal, MCI would be obliged to pay Verizon a $240 million breakup fee. A more probable outcome: Verizon raises its current bid.
Why is Verizon paying one MCI shareholder - Carlos Slim Helu - more than it has offered other shareholders?
The Slim deal, for Verizon, was tactical. Since Feb. 14, MCI's big investors were clamoring for Verizon to pay "more." In giving Slim $25.72 apiece for his 43.4 million shares, Verizon was telegraphing to the market the highest price it was willing to pay for MCI.
The gambit may have worked. Since the Slim deal was announced, MCI's other big investors have been pushing Verizon to pay them as much as - but no more than - it's giving Slim.
What's all this mean for consumers?
Not much, at least in the short term. MCI, like AT&T, stopped marketing its long-distance services to the residential market last year. Since then, the carrier has focused on business customers. Once MCI is merged with Verizon or Qwest, that focus is likely to continue.
