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Verizon acquires MCI
Posted: 14-Feb-2005 [Source: Verizon]

[Verizon announces its acquisition of MCI for $4.8 billion in equity and $489 million in cash.]

New York and Ashburn, VA -- Verizon Communications Inc. and MCI, Inc. today announced that Verizon has agreed to acquire MCI for $4.8 billion in equity and $488 million in cash.

The transaction adds new strength to the telecommunications services both companies provide. It ensures that consumers and businesses will have a supplier with the financial strength to maintain and improve MCI's Internet backbone network, which is the largest in the world based on company-owned points of presence.

The transaction will also mean better service for Enterprise customers by enhancing Verizon's ability to compete for and serve large-business and government customers with a complete range of services, including wireless and the most sophisticated IP (Internet Protocol) based services.

The 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 Friday, 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 Friday, Feb 11.

In total, the transaction values MCI shares at $20.75 a share, or $6.746 billion.

Verizon will assume MCI's net debt (total debt less cash on hand), targeted to be approximately $4 billion at closing, and customary closing conditions will apply.

In addition to MCI shareowner approval, the acquisition requires regulatory approvals, which the companies are targeting to obtain in about a year.

Financial Effect

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. Verizon expects the transaction to be essentially breakeven in year three, and cash flow will turn positive in year three.

Verizon estimates that the acquisition will yield a net present value of $7.0 billion in incremental revenues and operational savings, including investments in network and systems to achieve these savings. The costs are estimated to be approximately $1.0 billion to $1.5 billion in expense and $2.0 billion in capital during the first three years, as the company will commit appropriate resources to maintain and upgrade the MCI assets.

The company expects a net annual run rate of $1 billion in pre-tax savings in the third full year after closing.

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.

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