MCI Could Face Heat Over Verizon Bid; Legal Challenge Is Possible As Takeover Price Is Below What Key Holder Will Get

• Published in: The Wall Street journal Asia
• Main Author: Jesse Drucker and Dennis K. Berman
• Format: Newspaper Article
• Language: English
• Published: Victoria, Hong Kong Dow Jones & Company Inc 15.04.2005
• Subjects: Attorneys; Shareholder voting; Stockholders; Tender offers
• ISSN: 0377-9920

MCI's board has rejected three higher Qwest offers, each in favor of lower Verizon offers, with the latest Qwest offer of $8.9 billion topping Verizon by $1.4 billion. That's a lot of money to pass up, but many legal experts say MCI's board could be well within its rights as directors exercising their business judgment to accept the lower bids from Verizon, a more financially stable company than Qwest. But that equation has changed since the weekend, when Verizon said it would pay Mr. [Carlos Slim Helu] a premium for his 13% stake in the company. Under that deal, Verizon will pay him $25.72 a share in cash, plus a free call option -- an adjustment based on how much Verizon shares rise above a set price. That compares with $23.10 a share in the merger deal with the rest of MCI's shareholders, a deal that also has a call option. The argument, attorneys say, would be that MCI's board didn't try to seek the highest price possible from Verizon. The higher price paid to Mr. Slim, the argument goes, shows that MCI didn't exercise its duty of care to the rest of the MCI shareholders. "I think it's a significant possibility that, if the board of MCI did nothing more than to move forward on the basis of the current deal and didn't try to negotiate a higher price for the shareholders, that a Delaware court would find the board has not satisfied its fiduciary duties," says Samuel Thompson, a law professor and director of the University of California at Los Angeles Law Center for the Study of Mergers and Acquisitions. "The claim would be, under the circumstances, [that] it would be unreasonable for the board not to seek a higher value for the shareholders, given that Verizon has indicated it's willing to pay a lot more in cash immediately for a substantial block of shares."