NEW YORK –Verizon Communications Inc. is acquiring MCI Corp. for $6.75 billion, a swiftresponse to the acquisition of AT&T Corp. by SBC Communications Inc. andthe third big telephone industry merger in two months.
Theagreement announced Monday, scuttling a competing bid for MCI by QwestCommunications International Inc., will result in about 7,000 job cuts from thecombined Verizon-MCI work force of about 250,000 employees.
Thepurchase price was about a half billion dollars below what Qwest offered forMCI, which recently changed its name from WorldCom Inc. after emerging frombankruptcy and a huge financial fraud.
Verizonlikely won MCI’s favor because it is larger and in better financial shape thanQwest, the local phone carrier across the more sparsely populated RockyMountains and Pacific Northwest.
Denver-basedQwest had no immediate comment on the deal when contacted on Monday.
“MCI isone of just a few beachfront properties you’d want to see, so it would be crazynot to keep our eyes out,” for a company with assets like this up for sale,Ivan Seidenberg, Verizon’s chairman and chief executive, said in a conferencecall with investors Monday morning.
The dealvalues MCI’s stock at $6.75 billion, or $20.75 per share _ equal to Friday’sclosing price on the Nasdaq Stock Market. After rising 12 percent in two weeksamid speculation fueled by the SBC-AT&T deal, MCI’s shares fell $1.06, or5.1 percent, to $19.69 in Monday’s early trading.
Verizonshares rose 59 cents, or 1.6 percent, to $36.90 on the New York Stock Exchange.Qwest fell 26 cents, or 6.3 percent, to $3.89.
Verizonwill pay $4.795 billion worth of its stock and $488 million in cash for MCI’sshares. In addition, MCI shareholders will be paid dividends worth $1.463billion.
Verizon isalso assuming MCI’s debt, expected to total $4 billion at closing. Thecompanies estimated that merger transition expenses will total up to $3.5billion over three years after the deal closes, but that cost-cutting fromredundant operations will yield about $1 billion per year in savings startingin the third year.The deal is subject to MCI shareholder approval and requiresregulatory approval, which the companies hope to get in about a year.
The dealcomes some two weeks after a $16 billion deal reached between AT&T and SBC,a top rival for both Verizon and Qwest.
“ForVerizon, this deal represents a ‘Why not?’ strategy. With significant financialsecurity, Verizon can easily pull this deal off,” said Ben Silverman, telecomanalyst for investment newsletter FindProfit.com. “The deal cements Qwest’splace as an ‘also-ran’ and ‘has been’ in the telecom arena.”
MCIinvestors are said to have reacted poorly to the prospect of being paid withshares of stock in Qwest, a company marred by its own accounting scandals and amore questionable future.
The buyoutmarks an abrupt change of direction for Verizon, which just two weeks agodismissed the notion it needed to respond to either an SBC-AT&T deal or themerger agreement between Sprint Corp. and Nextel Communications Inc. inDecember.
The threerecent mergers would reduce the U.S. telecom industry to five dominant players– Verizon, SBC, BellSouth Corp., Sprint and Qwest — though the cable TVindustry has begun to emerge as serious threat on the consumer side with theaccelerating rollout of telephone service.
Analystsand investors widely expected that Verizon would realize the need to counterthe competitive advantage SBC will gain with AT&T despite that company’srapidly shrinking business.
And thoughmany said New York-based Verizon would have preferred to wait before cutting adeal, or possibly even bid for Sprint instead, the company apparently decidedit needed to act once Qwest made its play for MCI.
