NEW YORK – Long-distance telephone company MCI Inc. (MCIP) rejected a $9.1 billion takeover offer from Qwest Communications International Inc. (Q), leaving the spurned suitor to gauge shareholder reaction as it weighs its next move in the two-month takeover battle.
The rejection, announced early on Wednesday, marked the third time MCI has chosen a lower acquisition offer from Verizon Communications Inc. (VZ), which last week sweetened its bid to $7.6 billion.
The wrangling over MCI (search) is driven by the suitors' interest in gaining a presence in the market for providing telephone and data services to large corporations. Qwest (search) is also eyeing MCI's cash flow as a way to reduce its own $17 billion debt load.
MCI said Verizon's (search) bid offered more certainty of closing, while Qwest's bid was unpopular with its customers. MCI said in a statement that it was also concerned with Qwest's cost-saving assessments and its contingent liabilities.
"In the face of these risks, MCI was not willing to jeopardize the certainty of its Verizon agreement for the uncertainties surrounding the Qwest proposal," MCI said.
MCI was open to further discussions, it said, although its previous requests for Qwest to improve the price and terms of its offer were rejected.
Qwest's next move could be a hostile bid, which could bypass MCI's management and bring its offer directly to shareholders.
"We are confident that our offer is superior, and statements of support from many MCI shareowners indicate that they are in agreement with us," Qwest said in a statement.
"The company is currently weighing its options and shareholders will dictate the next steps in this process," Qwest said.
Some large MCI shareholders have balked at the lower price offered by Verizon, and urged MCI to negotiate a more lucrative deal with Qwest.
The talks came to a head on Tuesday as MCI asked Qwest to hike its bid as high as $9.9 billion, or $30 a share, up from its current bid of $9.1 billion, or $27.90 a share, a source familiar with the situation said. Verizon's deal is valued at $23.50 a share.
Denver-based Qwest refused to hike its offer and reaffirmed a deadline of midnight on Tuesday, saying it would withdraw its $9.1 billion offer if MCI failed to deem it superior to Verizon's deal.
Although Verizon has already sweetened its offer once, it had warned it would walk away instead of countering again if MCI picked Qwest's bid.
"We are pleased to see the process move to the next step, where we can begin the proxy phase of this transaction," Verizon said in a statement. "We are looking forward to working with MCI's shareholders to get the deal done properly."
Qwest reiterated that its offer would provide a higher financial payout, faster regulatory approval and greater synergies than the rival deal with Verizon.
Despite Qwest's higher price, MCI has repeatedly rebuffed its bids, citing Verizon's secure financial health and strong growth prospects as reasons for selecting it as a buyer. Verizon is the largest U.S. telecommunications company.