NY PSC: Two Mergers, Different Concerns

Telecom Policy Report, July 11, 2005

"Were AT&T to have merged with another major supplier in New York, then our tentative conclusion may have been different," the white paper stated. "AT&T is merging with SBC, a small supplier in the New York markets. This merger, therefore, does not appear to yield a significant reduction in choices for New York customers."

There apparently is little cause for concern associated with service quality because both SBC and AT&T recently received commission commendations for service quality. Staffers also don't see any reasons to seek recovery of any portion the cost savings and additional revenues resulting from merger synergies - as pass-alongs to consumers - because of the current competitive environment

The $16 billion SBC/AT&T merger appears to be progressing in other respects as well. At a late June meeting, AT&T shareholders gave their approval to SBC's acquisition, with some 70.7 percent of the company's shareholders casting their ballots in favor of the buyout; while almost 30 percent did not vote at all, of those who did vote, the tally was 97.9 percent in favor of the merger.

In addition, SBC and AT&T said clearances of the proposed merger have been completed in 26 of the 36 states needed, in the District of Columbia and in 14 countries (TPR, June 6). In light of this, SBC General Counsel James Ellis anticipates the merger will be completed late this year or in early 2006.

Will Qwest Come Calling Again?

MCI expects to hold a shareholders meeting this month for approval of the proposed $8.5 billion takeover by Verizon but, so far, no exact date has been set. However, a small hedge fund may stage a proxy fight to defeat the deal. Deephaven Capital Management LLC told the U.S. Securities and Exchange Commission last month it would not only seek shareholder support to upend the Verizon-MCI deal, but it hopes to coax Qwest Communications International into making another pass at buying the interexchange carrier.

Deephaven, a subsidiary of Knight Trading Group Inc., owns about 16 million shares of MCI worth an estimated $408 million along with nearly 1 million Qwest shares worth an estimated $3.7 million. The company - with its main offices in Minnetonka, Minn. - also holds some $190 million in MCI debt and another $80 million in bonds from Qwest.

Several large shareholders had opposed or had expressed reservations about the MCI-Verizon deal, and some wanted to see further consideration given to Qwest's higher offers, but the protests didn't escalate, especially when Qwest backed off. Qwest is no longer pursuing MCI after months of frustration (including a higher bid at about $9.85 billion), although the company has suggested it could re-evaluate the position if MCI shareholders outright rejected the Verizon offer. Sources say Qwest may closely monitor Deephaven's efforts and its chances, perhaps leading to a rekindling of talks.

Deephaven has never mounted proxy fight; a formal request with the SEC asking permission to solicit votes from MCI's shareholders against the Verizon- MCI deal may include a move to replace the MCI board as well. It retained the corporate governance and investor solicitation firm DF King & Co. for advice.