MCI Frenzy: It ain’t over yet

MCI’s track record of trying to merge with anyone has been checkered at best. Back in the day, it did a deal to sell itself to British Telecom, only to see its plans come apart at seams with Bernie & his crew came all guns blazing. Back in the boom years, the MCI+WorldCom tried to do a deal with Sprint, and that fell apart. When Verizon wanted to buy them, well did not happen. Will this time MCI be lucky, and things go on? Not sure entirely because there are a lot of problems with this deal. As I pointed out on Sunday, the deal is going to face some serious regulatory scrutiny. (Read New York Times’ superlative piece on the role of FCC in this new consolidated environment!)

“The deal will require a sizable number of concessions,” Andrew Lipman, regulatory telecom partner at Swidler Berlin LLP in Washington told The Daily Deal. He thinks that the “companies would likely need to sell MCI’s consumer business nationally to achieve regulatory approval. The FCC could also require Verizon to divest some of MCI’s business and government customers, in which both companies operate. But some sources said the companies will need only to shed certain MCI business customers within Verizon’s region.” Well if that’s the case, then what is really the true value of MCI?

What about that X-factor, Qwest? “I’m disappointed, but I respect the decision of the MCI board,” Dick Notebaert, Qwest CEO said. “We’re moving on. . . . We have to focus on us.” Not so fast because according to some news reports, privately the company is telling major MCI shareholders, that its deal is better than Verizon’s deal, and they should support their deal.

Qwest also has yet to publicly announce the details of its offer to MCI. On Sunday, a source close to Qwest said there was only $1 billion of cash in Qwest’s $7.3 billion offer delivered Friday night to MCI’s bankers and MCI management. But Qwest was saying Monday that its bid included $4.9 billion of stock and $2.4 billion of cash. It would be fairly routine for the largest MCI stockholders to request more detail from Qwest, Verizon and MCI. Another source said Qwest also was offering a $1.60-a-share dividend to MCI stockholders, which would have boosted the total offer by another $500 million to about $7.8 billion.

I think this is going to get a lot stickier than people realize. Why? MCI largest shareholders who own 11% of the company are dead set against it. According to Bloomberg report, they plan on opposing the merger.

“Verizon is buying MCI for $14.75 of their currency and $6 of my money,’’ said Cooperman, whose Omega fund in New York has 2.9 percent of MCI.Paulson, MCI’s fourth-biggest holder with a 4.1 percent stake, and Cooperman said Qwest should make its offer public and press to forge a deal with MCI. MCI shares may have traded as high as $25 or $26 had Qwest’s offer been accepted, Paulson said. “I don’t think it’s all over yet because ultimately this is going to have to be approved by MCI shareholders,’’ New York- based Paulson said. “If Qwest puts its offer forward, I think there’s a good chance shareholders would prefer the Qwest alternative.’’