As part of the increasing cult of consolidation sweeping the US telecoms industry Verizon Communications is to acquire embattled telecoms giant MCI for US$4.8bn in equity and US$488m in cash. When additional dividends are taken into acccount the total value of the transaction will amount to US$6.7bn.
The acquisition accelerates Verizon’s growth plans for the enterprise and gives MCI the financial strength to maintain and improve its internet backbone network, which is the largest in the world based on company-owned points of presence (POP) worldwide.
It is understood that the boards of directors of both companies have approved the agreement. MCI shareowners will receive 0.4062 shares of Verizon common stock for each common share of MCI. This is worth US$4.795bn and equivalent to US$14.75 per MCI share, based on Verizon’s closing price last Friday. MCI shareowners will also receive US$1.50 per MCI share in cash, worth US$488m. This consideration is subject to adjustment at closing and may be decreased based on MCI’s bankruptcy claims-related experience. In addition, MCI will pay its shareowners quarterly and special dividends of US$4.50 per share, worth US$1.463bn.
In total the transaction values MCI shares at US$20.75 a share, or US$6.7bn. Under the deal Verizon will assume MCI’s net debt, worth around US$4bn.
“This is the right deal at the right time,” said Verizon chairman and CEO Ivan Seidenberg. “We have been evaluating a transaction with MCI for some time and now we have the opportunity to reach an agreement at the right price that works for both companies and at a time when MCI is gaining momentum. It is a natural and logical extension of Verizon’s strategy to transform our company to serve growth markets and offer broadband technologies.
“This acquisition builds on and accelerates Verizon’s growth plan in the enterprise market, and it facilitates our becoming a major provider in that market sooner and less expensively than if we had continued on a path of organic growth. The acquisition will significantly enhance our customer service and competitive positioning by giving us a global reach, a suite of internet protocol-based and value-added services, and a powerful, broad base of large business and government customers,” Seidenberg said.
By John Kennedy