- The Washington Times - Monday, February 14, 2005

Verizon Communications Inc. agreed late Sunday to buy MCI Inc. for $6.7 billion, the latest in a wave of acquisitions that is reshaping the telecommunications industry and transforming the way consumers use technology to interact.

Together, the companies have about 250,000 employees, including nearly 16,000 in the Washington area. About 7,000 layoffs are expected after the acquisition is completed, but spokesmen for the companies said it is too early to tell where the jobs might be cut.

The union comes almost a year after MCI, which is based in Ashburn, Va., emerged from bankruptcy after a multibillion-dollar accounting scandal that erupted in 2002, when the company was known as WorldCom.

By agreeing to Verizon’s cash-and-stock bid, MCI — the nation’s second-largest long-distance telephone service — rejected a $7.3 billion offer from another suitor, Qwest Communications International Inc.

Verizon, based in New York, is the nation’s largest telecommunications provider and the top local telephone company in the Northeast. Analysts said MCI likely found Verizon more attractive because it is larger and in better financial shape than Denver-based Qwest, a dominant phone carrier in the West.

“This is absolutely the right play at the right time,” said Michael D. Capellas, MCI’s president and chief executive officer, during a conference call with reporters.

The deal is subject to approval from shareholders and regulators, which is expected to take about a year.

Some consumer activists said the acquisition threatens competition because it reduces the number of choices for long-distance service.

“Instead of fighting for market share, Verizon is buying it up,” said Janee Briesemeister, senior policy analyst for Consumers Union, the nonprofit advocacy group that publishes Consumer Reports magazine.

The deal values MCI’s stock at $20.75 per share, equal to the Friday closing price on the Nasdaq Stock Market. Shares sold for $19.93 apiece when trading ended yesterday.

Verizon shares were trading for $36.19 apiece when the New York Stock Exchange closed, down 12 cents from the closing price on Friday.

The agreement calls for Verizon to pay $4.79 billion worth of its stock and $488 million in cash for MCI’s shares. In addition, MCI shareholders will be paid dividends worth $1.46 billion.

Verizon also will take on MCI’s debt, which is expected to total $4 billion.

The deal comes on the heels of two other acquisitions in the telecommunications industry.

Last month, SBC Communications Inc. announced plans to buy AT&T; Corp. for $16 billion.

Sprint Corp. agreed in December to acquire Reston-based Nextel Communications Inc. for $35 billion.

“The market validated several of these consolidation moves. All of those things added to our confidence that the market was ready for this kind of deal,” Ivan G. Seidenberg, Verizon’s chairman and chief executive officer, told reporters.

The acquisition provides Verizon with more muscle to compete with SBC while giving it access to MCI’s lucrative roster of business and government clients. Some analysts said it would have been cheaper for Verizon to build its own base of corporate clients, but others said Verizon needed to act swiftly to compete with SBC and AT&T.;

“That certainly accelerated the time frame,” said F. Drake Johnstone, an analyst for Davenport & Co., a Richmond stock brokerage.

MCI’s board of directors met Sunday at 8 p.m. to consider the bids from Verizon and Qwest. About 9 p.m., Mr. Capellas called Mr. Seidenberg to congratulate him, and Verizon’s board finalized the details of the deal at 10:30 p.m.

Qwest representatives declined comment.

Mr. Seidenberg said it was too early to tell what might happen to the MCI name, which is used to brand the sports arena downtown where the Washington Wizards basketball team plays.

“That’s an operational issue. We’ll deal with that well down the road,” he said.

MCI began life in 1963 as Microwave Communications Inc. It introduced long-distance telephone service for businesses in 1969, becoming one of AT&T;’s chief rivals.

WorldCom bought MCI in 1997, creating MCI WorldCom. It dropped “MCI” from its name in 2000, but changed back after its reputation was battered in the accounting scandal.

Bernard J. Ebbers, former chief executive officer of WorldCom, is on trial for fraud, conspiracy and making false filings with the government. He has denied wrongdoing.

Verizon was born in 2000 when Bell Atlantic acquired GTE. Bell Atlantic was one of seven regional telephone companies, or “Baby Bells,” created after a federal antitrust suit broke up AT&T;’s monopoly.

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