MCI Shareholders, Qwest Pushing MCI To Drop Verizon Bid

MCI's largest shareholders, eager to fuel an escalating bidding war for the firm, are working with Qwest Communications to pressure the MCI board to drop its acceptance of an earlier bid for MCI by Verizon Communications.

Qwest's new $8.4 billion offer is some $1.7 billion higher than Verizon's $6.7 billion offer which the MCI board had accepted because the directors felt Verizon represented a better fit.

The two sides and their supporters continued to square off Friday, raising their voices as they sung their own praises and attacked each other's interests.

"Wall Street believes Qwest's pursuit of MCI is motivated by financial expediency, rather than grand, strategic synergies," said Robert A. Saunders, research director of the Eastern Management Group, in an e-mail. "Mergers should be about the right fit of people, assets, and strategic direction, not keeping the creditors off your back."

"We believe that the merger of Qwest and MCI would result in an overall lessening of competition in the long-haul Internet traffic market, greater job losses, markedly reduced capital expenditure, and drastically less broadband deployment than would be the case under a Verizon-MCI scenario."An opposing opinion was offered by Qwest chief executive Richard Notebaert in an interview with the Denver Post. "Financing has not been an issue," he said. "We have to turn people away."

Notebaert maintains that a Qwest-MCI combine would create a strong competitor to Verizon and SBC Communications, which are beginning to dominate the U.S. telecommunications market.

Major shareholders are pushing Verizon to increase its bid. Verizon will continue talking with MCI through a March 28 deadline MCI has set for reviewing the latest Qwest offer, giving it ample time to sweeten its offer. Fairholme Capital Management, owner of 3.5 percent of MCI, has said it believes Verizon should be paying $30 a share for MCI--well beyond the $20.75 it offered earlier.

If MCI should reject the Verizon bid it accepted earlier, it would have to pay Verizon a $200 million break-up fee.

Since the Verizon offer was made to MCI, its bidding rival Qwest picked up $418 million from an unusual source: Verizon Wireless. Majority owned by Verizon Communications, Verizon Wireless announced that Qwest would receive that amount for Qwest wireless spectrum licenses.0