NEW YORK -- MCI Inc. accepted a sweetened $7.64 billion takeoverproposal from Verizon Communications Inc. on Tuesday that raises theprice tag by $1 billion, but is still nearly a billion dollars shy ofthe latest bid for the long-distance phone company from QwestCommunications International Inc.
The new offer from Verizon increases the amount of cash being paidand provides protection against a possible decline in the value ofthe Verizon shares that MCI investors will receive, the companiessaid in a statement.
Qwest said it will reassess the situation, but reiterated itsposition that it has submitted a superior offer valuing MCI at $8.45billion, or $26 per share.
Verizon has now agreed to pay $23.50 for each MCI share,consisting of Verizon stock worth at least $14.75 and $8.75 in cash.In the original deal reached by Verizon and MCI in mid-February,Verizon was to pay $14.75 in stock and $6 cash for each MCI share.
Both the Verizon and Qwest offers include a 40-cent cash dividendpaid by MCI to its shareholders earlier this month, as well as futureMCI dividends scheduled to be paid before the proposed deal iscompleted.
MCI said that in making its determination, its board of directorsconsidered the need for Verizon's size, resources, reputation withcustomers, and wireless capabilities as key to survival in thetelecommunications market.
"MCI's board has been closely and carefully evaluating all of therecent developments," Nicholas deB. Katzenbach, MCI's chairman, saidin a statement. "We believe Verizon's substantial increase in itsoffer, the strength of its competitive position and the financialcertainty at close make this offer compelling to our shareholders,customers and employees."
MCI shares rose 67 cents, or 2.9 percent, to $23.61 in middaytrading on the Nasdaq Stock Market. Verizon's stock rose 54 cents, or1.6 percent, to $35.26 on the New York Stock Exchange, where Qwestrose 6 cents, or 1.6 percent, to $3.81.
The new deal comes about two months after SBC Communications Inc.agreed to pay $16 billion to acquire AT&T Corp., setting off thescramble by Verizon and Qwest to respond with a buyout of MCI.
AT&T and MCI are both losing revenues and customers with thecollapse of long-distance phone service as a viable standalonebusiness.
The two companies have been hurt badly by competition from Bellssuch as Verizon and SBC, as well as well cell phones and Internet-based phone service, all of which offer unlimited national callingfor a set rate.
The situation worsened dramatically last year when a court put anend to federal requirements that the Bells lease their local phonelines to rivals at discounted rates, making it more expensive forAT&T and MCI to compete with their own unlimited local and long-distance plans.
This is now the second time MCI has opted for a lower payment fromVerizon out of concern about Qwest's questionable financial healthand business prospects. When MCI's board accepted Verizon's original$6.75 billion offer, it did so with an $8 billion bid on the tablefrom Qwest.
The persistent worries about Qwest were seen as a likely reasonwhy a much stronger Verizon wouldn't need to match the Qwest offer ifit chose to raise its bid.
However, in the month and a half since the first MCI-Verizon dealwas reached, Qwest has raised its bid by a half-billion dollars andVerizon's stock has declined.
That widened the financial gap between the competing offers to alevel which increased pressure on MCI's board from its shareholdersto reconsider Qwest's courtship.
The reported new bid from Verizon comes one day after Qwest issueda one-week deadline for MCI to accept its latest proposal.
"We respect the right of Verizon to change the composition andvalue of their bid, but we still believe our proposal createssuperior value for shareowners," Qwest said in a statement. "We aregoing to assess the situation and determine what is in the bestinterests of shareowners, customers and employees."
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