Welcome to the Business Journal Archives
Search for articles below, or continue to the all new BusinessJournalDaily.com now.
Search
Verizon to Acquire MCI for $5.3 Billion in Equity and Cash
"NEW YORK -- Verizon Communications Inc. and MCI Inc., Ashburn, Va., today announced that Verizon has agreed to acquire MCI for $4.8 billion in equity and $488 million in cash. 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 $4.795 billion and equivalent to $14.75 per MCI share, based on Verizon's closing price on Feb. 11. MCI shareowners will also receive $1.50 per MCI share in cash, worth $488 million. 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 $4.50 per share, worth $1.463 billion. This includes a 40-cent-per-share quarterly dividend approved by the MCI Board on Feb 11.In total, the transaction values MCI shares at $20.75 a share, or $6.746 billion, officials said.Verizon will assume MCI's net debt, targeted to be approximately $4 billion at closing, and customary closing conditions will apply."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," said Ivan Seidenberg, chairman and chief executive officer of Verizon. "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 IP-based and value-added services, and a powerful, broad base of large-business and government customers.""Combined with Verizon's financial strength and record of operational excellence, we will accelerate delivery of next-generation services, broaden our product portfolio and better serve our customers," added Michael D. Capellas, president and CEO of MCI and native of Warren, Ohio.Seidenberg and Capellas emphasized that the transaction is part of the continuing evolution of the industry that is driven by customers and technology. They highlighted several key benefits that the companies' complementary assets bring to the market, as follows:For enterprise customers, the transaction creates a strong competitor that, in most markets, will challenge a larger incumbent. The more-efficient operating structure will drive better value, and Verizon will be able to offer a suite of services that address a full range of customer needs. The transaction also strengthens the long-term viability of MCI's global network, which is a critical component of government communications systems, including those used by the Department of Defense and the Department of Homeland Security.For consumers and other business customers, the post-transaction company will continue to have sufficient cash flow and capital capacity to sustain its rapid deployment of wireline and wireless broadband networks and services.Internet users in the United States will have a strong backbone platform for their traffic, and together the two companies can make greater investments in their backbones and offer the highest quality of service. In a multi-media market where technology platforms compete against one another to provide services, having strong backbone networks will enhance the post-transaction company's ability to deliver advanced services over owned and managed facilities to benefit consumers and small- and mid-sized businesses.For investors, the combination will enhance the company's competitive positioning and long-term financial flexibility.In the first year following closing, the transaction is expected to have an approximate 10-cent-per-share dilutive impact on Verizon's earnings per share, excluding acquisition costs and any amortization of intangible assets that may be created at the time of the acquisition. It is expected that the transaction essentially will be breakeven in year three, and cash flow will turn positive in year three as well. The acquisition is expected to yield a net present value of $7 billion in incremental revenues and operational savings, including investments in network and systems to achieve these savings. The costs are estimated to be approximately $1 billion to $1.5 billion in expense and $2 billion in capital during the first three years, as the company will commit appropriate resources to maintain and upgrade the MCI assets.Verizon's $4.8 billion in equity to purchase MCI represents 132.1 million Verizon shares, or approximately 4.5 percent of Verizon's outstanding shares. The companies will determine operational plans, such as branding strategies and organizational structure, as the transaction moves closer to closing.Verizon Communications has more than 210,000 employees and services customers in 29 states with wireline telecommunications services, including broadband, nationwide long-distance and other services.Visit Verizon Communications Inc.: www.verizon.comVisit MCI Inc.: www.mci.com"