Verizon To Buy MCI For $6.7 Billion

NEW YORK (AP) -- Verizon Communications Inc. has won the bidding to acquire MCI Corp., a swift response to the buyout of rival AT&T Corp. by SBC Communications Inc. and the third big telephone industry merger in two months, The Associated Press learned early Monday.

The agreement, scuttling a rival bid by Qwest Communications International Inc., was expected to be announced Monday morning, according to sources familiar with the matter who spoke on condition of anonymity.

The purchase price of about $6.7 billion, about a half billion dollars below what Qwest offered, was approved by the boards of directors at both Verizon and MCI after a busy weekend of negotiations, the sources said.

Both companies declined comment to the AP.

The sudden rash of interest in MCI, which recently changed its name from WorldCom Inc. after suffering bankruptcy and a huge financial fraud, was set off by the $16 billion deal reached two weeks ago between AT&T and SBC, a top rival for both Verizon and Qwest.Verizon, the dominant local phone company in the Northeast and a top cellular player, likely won MCI's favor because it is larger and in better financial shape than Qwest, the local phone carrier across the more sparsely populated Rocky Mountains and Pacific Northwest.

``For Verizon, this deal represents a `Why not?' strategy. With significant financial security, Verizon can easily pull this deal off,'' said Ben Silverman, telecom analyst for investment newsletter FindProfit.com. ``The deal cements Qwest's place as an `also-ran' and `has been' in the telecom arena, a company devoid of attractive material assets and with a balance sheet that any corporate executive would rather not admit to.''

MCI investors are said to have reacted poorly to the prospect of being paid with shares of stock in Qwest, a company marred by its own accounting scandals and a more questionable future.

The buyout marks an abrupt change of direction for Verizon, which just two weeks ago dismissed the notion it needed to respond to either an SBC-AT&T deal or the merger agreement between Sprint Corp. and Nextel Communications Inc. in December.

Analysts and investors widely expected that Verizon would realize the need to counter the competitive advantage SBC will gain with AT&T despite that company's rapidly shrinking business.And though many said New York-based Verizon would have preferred to wait before cutting a deal, or possibly even bid for Sprint instead, the company apparently decided it needed to act once Qwest made its play for MCI.

For SBC, which dominates local phone service from the Midwest through California, AT&T brings a national network infrastructure and a valuable customer base of 3 million businesses and 24 million consumers _ both with a major presence within Verizon's stronghold on the East Coast.

MCI's business isn't as large as AT&T's, but its network would give Verizon a national footprint with which to serve large companies hesitant to trust their communications to a regional service provider. MCI also would jump-start that effort with its base of corporate clients and an established sales force.

On the consumer side, AT&T and MCI also bring a big base of residential customers to whom SBC and Verizon would like to market the cable TV services they plan to roll out starting later this year. Both SBC and Verizon are investing billions to upgrade their networks to deliver video and interactive services.

MCI, based in Ashburn, Va., emerged from bankruptcy last spring after a multibillion-dollar accounting scandal which nearly destroyed the company.Former chief executive Bernard Ebbers is currently being tried on criminal charges in the fraud, which boosted the profits WorldCom reported by hiding billions of dollars in expenses and inflating revenues. Former chief financial officer, Scott Sullivan, became the government's lead witness against Ebbers after pleading guilty in the scandal.

The company, once worth $180 billion on the stock market, wiped away most of its debt in the bankruptcy reorganization.

But a combination of price wars, unfavorable regulatory changes, and competition from cell phones and Internet-based calling made it unlikely the company could survive on its own for the long term, so Chief Executive Michael Capellas immediately began shopping the company around to prospective buyers.

Verizon might have wanted to wait before striking a deal to see how regulators will react to the SBC-AT&T deal, which reunites two large swaths of the national Bell monopoly which the government broke up in 1984.

If that process went smoothly, Verizon might have been emboldened to bid for Sprint, whose reputation isn't tarnished by scandal and whose cellular business uses the same technology as Verizon Wireless.Still, with a market value of $34 billion, Sprint would have been far more expensive for Verizon to buy.

Such a deal also would have been complex since it likely would have required Verizon to convince Sprint to break off its merger with Nextel, a suggestion which Sprint executives rejected at a meeting with investors on Thursday.

And even if the SBC-AT&T deal may clear the regulatory path for a merger between local and long-distance carriers, antitrust officials might have bristled at a combination of Verizon Wireless and Sprint PCS, the nation's second and third largest cell phone companies.

By contrast, a deal with MCI is cheaper and simpler.