March 24, 2005

Web hosting provider and telco carrier MCI said yesterday that its board of directors met to discuss the latest acquisition offer tabled by Qwest Communications. Earlier this month, Qwest raised its offer to buy MCI to $8 billion.

The move came on the heels of an original revised offer put forward after it lost out in the bidding to Verizon (verizon.com), which made a successful bid to acquire MCI in February for a reported $6.7 billion. MCI reportedly took the Verizon offer over Qwest's original proposals because of the company's stronger financial position and potential for growth.

Qwest's surprising move was made because of the company's concern that it would have difficulty remaining independent as the telecom industry continues to consolidate, reports say. There were also indications that MCI shareholders were unhappy with the Verizon bid.

Earlier this month Verizon agreed to a waiver allowing MCI to continue discussions with Qwest until March 17.

Analysts say Verizon will likely make a counter-bid but reportedly will not involve itself in a bidding war. Another possibility would see Qwest buy MCI, with Verizon trying to acquire the newly merged entity at a later day. However, analysts say overriding concerns with Qwest's financial position make it unlikely MCI will accept Qwest's overtures.

Whichever company lands MCI would significantly expand its Web hosting presence. MCI is the world's ninth largest host, home to 878,000 hostnames, according to research firm Netcraft (netcraft.com). MCI's customer base has been growing at a rapid pace, adding 233,000 hostnames in the last year, with 61,000 coming in the last two months alone.

Source: The WHIR