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. Last Updated: 07/27/2016

Verizon Wins MCI With $6.7Bln Offer

NEW YORK -- Verizon has won the bidding to acquire MCI, a swift response to the buyout of rival AT&T by SBC Communications and the third big telephone industry merger in two months.

The agreement, scuttling a rival bid by Qwest Communications International, 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 $500 million below Qwest's offer, was approved by Verizon's and MCI's boards of directors after a busy weekend of negotiations, the sources said.

Both companies declined to comment.

The sudden rash of interest in MCI, which recently changed its name from WorldCom 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.

Verizon, the dominant local phone company in the northeastern United States and a top mobile 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 the investment newsletter "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 a 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 and Nextel 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 infrastructure and a customer base of 3 million businesses and 24 million consumers -- both with a major presence within Verizon's east coast stronghold.

MCI's business is not 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.