4.29.2005

Memo to Verizon: Walk Away!

As a Verizon shareholder, I hope management and the board do the right thing and walk away from the silly bidding war for former criminal enterprise MCI.

Verizon had negotiated an arguably reasonable purchase price for MCI (formerly WorldCom), which it wanted for its lucrative long-distance business. MCI has strong competitive positioning in the business, largely due to the fact that its balance sheet was wiped clean by the bankruptcy fairy (memo to other companies: an easy way to gain competitive advantage is to perpetrate massive fraud, wipe out the shareholders, send a few bozos to prison, then file bankruptcy and emerge debt-free while your competitors still labor under mountains of debt).

Then Qwest, an under-financed former near-bankruptcy candidate itself, started a bidding war. Qwest is paying a huge premium, and expecting the synergy fairy to deliver unimaginable mountains of treasure. Not going to happen. Qwest will have to add more debt to its already smelly balance sheet, and the size of this purchase will be an anchor around Qwest's neck for years. It's a truism in business that synergies rarely amount to what the acquirer expects, and huge acquisitions rarely work out well.

Verizon should walk away, and take the $250 million break-up fee as a lovely parting gift. Qwest's stock will sink, burdened by massive debt and the failure of expected synergies to emerge. Verizon will be able to buy parts or all of MCI when Qwest is forced to sell to service debt -- or maybe Verizon will just buy all of Qwest at lower prices.

1 comment:

Mike said...

I could not agree with you more. 250 million + Legal Expenses + 2 billion (13.4% of MCI stock @ $30)= Tons of money.

Literally tons of money, especially if you get it in like nickels.

Nailed it!

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