Following the announced merger of SBC Communications
Today's online edition of TheWall Street Journal has it that Qwest Communications
Qwest offers phone service in 14 Western states and is valued at about $7.6 billion, slightly more than MCI. While details of the merger are still unclear, Qwest is already saddled with more than $17 billion in debt. How much more would the merger add to the balance sheet? Another possibility being considered for MCI is for its largest shareholder, Carlos Slim, to take the company private.
When Philip Durell recommended MCI in the inaugural issue of Inside Value, he saw the cash-generating potential of the company, as apparently did Leucadia
The consolidation under way in the telecommunications could result in there being just four major carriers players left when the dust settles, according to market analysts at Gartner. Interestingly, they view Qwest as a possible takeover target itself, along with Sprint
It may be that a merger of MCI with someone else is inevitable, but that does not mean shareholders must accept the first bid that comes along. Philip believes that due to the uncertainty in the telecom industry these days, a more reasonable takeout price would be $22-$23 a share, or about 85%-90% of the intrinsic value he calculated. As he noted in his recommendation, MCI represents a turnaround story that is just getting started. Of the possible partners making the rounds of the rumor mill, Qwest would appear to be a weak choice. A bid by Verizon might be better and would make more sense since it has more to lose in its rivalry with SBC.
With Ma Bell in her dotage, and the kids all grown up now, one can look wistfully back on the vastly different landscape that that was the telecom industry of her youth.
Read more about the tumultuous changes occurring in telecommunications:
- Saying "No" to AT&T?
- SBC's AT&T Buy No Blunder
- Troubles in Telecom
- Bless Leucadia's Heart
- WilTel. Or Won't It?
Fool contributor Rich Duprey is often thought to be in his dotage. He does not own any of the stocks mentioned in this article. Talk about MCI, Qwest, and the telecommunications industry on our discussion boards (free trial required).