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Verizon to buy MCI for 5.3B

Schadenfroh

Schadenfroh

Elite Member
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NEW YORK (Reuters) - Verizon Communications Inc. on Monday said it would acquire long-distance telephone company MCI Communications Inc. for $5.3 billion to accelerate its efforts to serve multinational corporations, marking the latest in a series of telecommunications mergers.

Verizon's offer includes $4.8 billion in stock and $488 million in cash. MCI will also pay dividends of $4.50 per share, or nearly $1.5 billion, bringing the total value for MCI shareholders to more than $6.7 billion.

In total, the transaction values MCI shares at $20.75 each. Shares of MCI, which had been reported to have been in talks with Verizon over the past two weeks, traded at $20.69 in premarket trade on the Inet electronic system, down from Friday's close at $20.75 on Nasdaq

Verizon edged out rival bidder Qwest Communications International Inc., which had offered $7.3 billion, sources said, but was seen as the weaker suitor due to its hefty debt load and smaller share of the corporate market.

The boards of both companies have approved the agreement, which also needs approval from MCI shareholders and regulatory authorities that the companies hope to obtain in about a year.

"It is a natural and logical extension of Verizon's strategy to transform our company to serve growth markets and offer broadband technologies," Verizon Chief Executive Ivan Seidenberg said in a statement.

The bids for MCI came in the wake of SBC Communications Inc.'s proposed $16 billion acquisition of long-distance telephone company AT&T Corp. and a wave of mergers among wireless telephone companies

Verizon, which serves mostly small- and mid-sized businesses, sees MCI as a quick entry to supplying communications services to large corporations.

MCI, which started out in the 1960s as a scrappy competitor to AT&T before being acquired by Mississippi upstart WorldCom in 1988 and eventually collapsing into bankruptcy amid an accounting scandal, is the No. 2 player in the multinational communications market behind AT&T.

Under terms of the agreement, MCI shareholders will receive 0.4062 share of Verizon common stock for each common share of MCI, worth a total of $4.8 billion, and $1.50 per MCI share in cash, worth another $488 million.

MCI will also pay its shareholders quarterly and special dividends of $4.50 per share, including a 40 cents per share quarterly dividend approved by the MCI board on Friday.

Verizon, which will assume MCI's net debt of about $4 billion, said it expects the transaction to dilute its earnings by about 10 cents per share, excluding acquisition costs and any amortization of intangible assets created at the time of the acquisition. Verizon said it expects the deal to be essentially breakeven in the third year after the deal is closed.

While buying MCI saves Verizon the time and money of building a corporate-services business on its own, MCI still requires significant investments to upgrade and integrate its networks, sources familiar with the situation said.

Verizon estimates the acquisition will yield a net present value of $7 billion in incremental revenues and operational savings, including related investments in network and systems.

The costs are estimated to be about $1 billion to $1.5 billion in expense and $2 billion in capital during the first three years.

MCI on Monday reported its fourth-quarter revenue fell 10 percent to $5.0 billion from last year and reported operating income before depreciation and amortization of about $775 million, based on preliminary results.

MCI was formed as Microwave Communications Inc. in the 1960s and was acquired in 1998 by WorldCom, a Mississippi long-distance telephone reseller that acquired about 60 companies in the 1990s. It became a Wall Street darling with stock market capitalization of about $200 billion before buckling in bankruptcy in 2002 amid an accounting scandal.

WorldCom emerged from bankruptcy last year, using the name MCI.
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Looks like Capellas did his job. He got MCI out of bankruptcy and sold the company since it would have a hard time competing. Rumor is that he is going to go back to HP now.
 
The reason MCI needs this deal is that because they had filed for bankrupcy, many government agencies/organizations had rules that required them to not use MCI anymore. By merging with Verizon, this restriction is lifted.
As for Verizon, they needed to keep pace with SBC, who bought AT&T.
 
They should have used the 10% stackable coupon, and pricematched to Staples. Then, it would almost be worth it.
 
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