Verizon Communications to Purchase MCI Inc. for 0.25 Times Revenue

Weekly Corporate Growth Report, Feb 21, 2005

The Deal: Verizon Communications and MCI Inc. have reached an agreement for Verizon to acquire MCI in a deal valued at about $6.75 billion. MCI's board choose Verizon's offer over a bid of $7.3 billion from Qwest, accepting the lower offer because it had concerns about Qwest's ability to finance the transaction and about the long-term value of Qwest stock. The Verizon deal values MCI at about $20.75 per share. Under the terms of the transaction, Verizon will pay $4.795 billion worth of its stock and $488 million in cash for MCI. In addition, MCI shareholders will be paid dividends worth $1.463 billion. Verizon will also assume MCI debt. The deal requires shareholder and regulatory approvals. The companies hope to receive regulatory clearance in about a year.

Discussion: MCI is the second-largest long-distance company in the United States. The company emerged from bankruptcy protection in 2004, changing its name from WorldCom to MCI. The company nearly collapsed when an $11 billion accounting fraud was uncovered. The company is currently moving away from consumer services in favor of serving corporate and government clients.

Verizon is the leading telecom services provider in the United States. Verizon Wireless, the company's joint venture with Vodafone Group, is the leading US wireless provider. Verizon also operates a national Internet protocol (IP) network and provides voice and data transmission services to international customers.