Memo to Qwest: Your Money Is No Good Here

Once again Qwest (the RBOC that time forgot) is finding that being the fourth biggest local phone company is not all that is cracked up to be. The wayward Denver telco - formerly US WEST until ethically challenged Joe Nacchio took over - finds itself in a fight for MCI (another telco with a long list of ethical issues). The rub here is that Qwest is offering MORE money in the deal than competitor Verizon yet cannot seem to close the deal.

Here's the rundown...read slow as it's a little dense.
MCI - after fleecing thousands of retirees and hard working folks out of their hard earned savings - emerges from bankruptcy with essentially a clean balance sheet (a rarity in the telco world). MCI actually owns some valuable assets - national calling network and owners of UUNET who are a major Internet backbone. Since the telcos are in a furious game of consolidation in order to get cost savings and scale, MCI was quite an attractive property.

With fellow telco SBC attempting to swallow AT&T and BellSouth doing there usual nothing, Verizon looked at MCI and saw an opportunity and jumped on it.

February 13th is when the fun began with Verizon offering 6.75 Billion for MCI. Qwest, eager to make something happen, shockingly got into the game. Only they had one problem - MCI wouldn't give them the time of day.

Now picture this as an MCI shareholder. You've bought bonds in this shamed organization and now you have equity. Someone actually wants to take MCI off of your hands (great news!) and then, in an even greater twist of fate, another company wants to get into a bidding war. You think you've died and gone to heaven.

Almost. Only MCI is still overseen by a court appointed director as part of their post-bankruptcy plan. That director clearly thought that the long term prospects for Qwest (and their $17 Billion in debt) was not prosperous. Despite their better offer (Qwest came to the table with $8 Billion), they couldn't even get a meeting.

However, Qwest CEO Richard Notebart would not go quietly into the night. He took his offer to the people and begrudginly Verizon raised their offer (all cash) to $7.5 Billion. Qwest made another offer on top of its first one and THEN another offer of $8.9 Billion (cash and stock) that was, of course, rejected by MCI.

MCI is essentially giving the proverbial finger to Qwest in favor of the much stronger Verizon. However, experts who know more about this than I do stated strongly that even though Qwest's offer was not all cash, it was still much stronger than Verizon. Regardless, it appears that MCI is headed toward a marriage with Verizon.

This is quite a dilemma. If I was a shareholder of MCI, I'm not a happy hobbit right about now. From my standpoint, who cares if Qwest is swimming in debt. Their offer is better. Give me my money. Maximized shareholder return is what it is all about. In the case of MCI the idea they would leave that amount of money on the table shows to me that shareholders are taking a backseat. But why? I'm sure we'll learn more in the coming days, but right now I'm perplexed.
By the way, Qwest stated their last offer was their final, final, double secret probation offer. Which means their next step is to set up a plasma donation area in the corporate office and use the dollars earned from that to sweeten their current offer. Stay tuned...