Verizon Sweeps Up MCI

Verizon Communications has agreed to acquire MCI in a deal valued at $6.7 billion, the companies announced Monday. The announcement ends weeks of speculation about a likely deal.

Verizon says the acquisition will accelerate its plans to become a significant player in the enterprise services market, giving it a broader reach globally, a suite of advanced Internet Protocol-based services, and a large base of business and government customers.

Getting regulatory approval for the deal is likely to take as much as a year, the companies say. Verizon must also win the approval of MCI's shareholders. The board of directors at both companies has approved the agreement, they say in a statement.

Verizon will pay $4.8 billion in shares and $488 million in cash to buy MCI. MCI, meanwhile, will pay its shareowners quarterly and special dividends of $4.50 per share, worth $1.46 billion, bringing the total value of the deal to $6.7 billion, the companies say.

Ivan Seindberg, Verizon's chairman and Chief Executive Officer, called the deal "a natural and logical extension of Verizon's strategy to transform our company to serve growth markets and offer broadband technologies."

The companies will figure out their branding strategy, organizational structure, and other details closer to the completion of the deal, they say. Verizon will take on MCI's net debt when the deal closes, projected to be about $4 billion.

The deal comes two weeks after SBC Communications said it planned to acquire AT&T in a deal worth $16 billion, and is likely to spark a guessing game among industry insiders over possible additional merger deals.

Qwest Communications International, which had been trying to broker its own deal with MCI, now finds itself on its own, and analysts last week speculated over plans that BellSouth and Sprint might have plans for a deal with a competitor or with each other.

Familiar Territory

Neither MCI nor Verizon is new to the world of mergers.

Verizon itself was formed through a $53 billion merger, completed in June 2000, between Bell Atlantic and GTE, both of which were created after the government-ordered breakup of the old AT&T in 1984. WorldCom merged with the original MCI Communications in September 1998 in a $37 billion deal that, at the time, was the largest corporate merger in U.S. history. The deal created MCI WorldCom.

Verizon went on to riches and in 2004 had $67.8 billion in annual revenue, making it the world's largest telecom company. Verizon, which started as a local phone service carrier, has focused in recent months on enterprise telecom services and on delivering fiber-to-the-premises service to some customers. Verizon's fiber deployment will allow it to offer television services that compete with cable TV.

MCI WorldCom's fate would be very different. A massive accounting scandal enveloped the company after an internal audit in June 2002 uncovered $3.8 billion in accounting errors. In July 2002, WorldCom declared bankruptcy, and the accounting misstatements eventually reached a total of $11 billion. In March 2004, a month before the newly renamed MCI emerged from bankruptcy, the company issued a report reducing pretax income for 2000 and 2001 by $74.4 billion.

Before the company declared bankruptcy, WorldCom CEO Bernard Ebbers resigned in April 2002, amid questions about more than $360 million in personal loans he received from the company. In March 2004, Ebbers was charged in federal court in New York with conspiracy and securities fraud. Scott D. Sullivan, WorldCom's former chief financial officer, pleaded guilty and agreed to cooperate with prosecutors.

Ebbers' trial began in the U.S. District Court for the Southern District of New York in January 2005.

After emerging from bankruptcy, MCI reported a $3.4 billion loss in the third quarter of 2004.