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Qwest announces `final' retreat in battle for MCI

Qwest dropped out of the bidding war for MCI Inc on Monday after MCI agreed to another new deal with Verizon, rejecting a higher-priced bid from Qwest for the fourth time.

"It is no longer in the best interests of shareowners, customers and employees to continue in a process that seems to be permanently skewed against Qwest," the Denver-based company said in a statement. "We pursued MCI with tenacity and discipline and feel strongly that our bid would have brought far more value to MCI shareholders."

A spokesman for Qwest Communications International Inc said the decision to retreat was "final."

The announcement came hours after MCI announced an improved US$8.5 billion deal with Verizon that still pays shareholders US$1.3 billion less than what Qwest has offered.

MCI, the struggling long-distance phone company formerly known as WorldCom, declined to discuss Qwest's announcement. Verizon, one of the nation's two biggest local and wireless phone companies, also declined to comment.

Qwest, the local phone company for 14 mostly western states, had been poised to finally win the MCI board's endorsement had Verizon not delivered an improved proposal by the end of Monday. That was the deadline Qwest had set for withdrawing its US$9.85 billion bid.

With its latest rejection, Qwest bristled anew at its treatment by MCI. Qwest also rejected the negative appraisal of its financial health and business prospects that MCI's board used in justifying a lower-priced deal with Verizon.

"By accepting a lower offer, without even contacting Qwest, and by reportedly allowing Verizon to instruct MCI to impugn Qwest, it is only fair to conclude that MCI is more interested in bending to Verizon's will than serving its shareholders," the Qwest statement said.

"Unfortunately, the latest in a string of decisions reconfirms what we have believed all along: that MCI never intended to negotiate in good faith with Qwest nor maximize shareowner value," the statement said.

The new deal with Verizon marks the second time that company has been forced to pay more in what became the biggest telecom bidding war since 1999 -- when Qwest Communications Inc outgunned Global Crossing Ltd to acquire the Baby Bell US West during the technology bubble.

MCI agreed to the deal slightly more than a week after it declared the previous Verizon deal inferior to the Qwest bid, but stopped short of accepting that offer. Under the terms of the Verizon deal, MCI was obliged to give Verizon a week to respond with an improved proposal.

Under the sweetened deal with Verizon, each MCI share would be exchanged for cash and stock worth at least US$26.

The latest Verizon bid includes US$5.60 in cash, the same as in its prior bid of US$23.10 per MCI share, plus Verizon stock worth at least US$20.40, and possibly more if Verizon's stock rises by the time the deal closes. Specifically, in addition to the cash, each MCI share would be exchanged for either 0.5743 of a Verizon share.

That ratio would only be adjusted if Verizon's shares were to fall.

MCI, based in Ashburn, Virginia, has been hit hard by competition and a bankruptcy brought on by the WorldCom scandal, but still possesses a valuable customer base and national fiber-optic network.
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