Qwest Plans to Raise $8 Bln Bid for MCI, People Say
By Dana Cimilluca
Bloomberg News
Friday, March 11

Qwest Communications International Inc., the No. 4 local-telephone provider, plans to raise its $8 billion offer for MCI Inc. in a bid to break up MCI's proposed acquisition by Verizon Communications Inc., people familiar with the matter said.

MCI, the No. 2 U.S. long-distance operator, reopened negotiations after Denver-based Qwest revised the $24.60-a-share bid.  MCI directors are discussing Qwest's approach in a meeting today.  Qwest may increase the cash element of the cash and stock proposal, said two of the people, who asked not to be named.

A more attractive bid from Qwest would increase pressure on Verizon, the No. 1 U.S. phone company, to offer more than the $6.75 billion it agreed to pay.  MCI's largest shareholders, including billionaire Carlos Slim, said last week that MCI Chief Executive Officer Michael Capellas should push Qwest and Verizon for a higher offer.

``This may force Verizon to finally come in and increase their bid,'' said Ed Paik, manager of the $400 million Columbia Utilities Fund in Boston.  The fund, part of Bank of America Corp., owns shares of all three phone companies.  ``If they really want it, they can have it. They're just going to have to pay up.''

Qwest CEO Richard Notebaert and Verizon CEO Ivan Seidenberg are dueling for one of the last available U.S. long-distance operators, which has contracts with large companies such as Hewlett-Packard Co.

``We have a very good bid on the table, a bid that takes into consideration all of the shareowners, the customers and the employees of MCI,'' said Verizon spokesman Eric Rabe.

Negotiations

Qwest spokesman Tyler Gronbach and Peter Lucht, a spokesman for Ashburn, Virginia-based MCI, declined to comment on Qwest's plans, which were first reported today by Reuters.

MCI directors agreed to the lower offer because they considered New York-based Verizon, with a market value of $100 billion, a stronger partner than Qwest, which is capitalized at $7 billion.

Shares of MCI rose 36 cents to $24.09 at 4 p.m. New York time in Nasdaq Stock Market composite trading.  Qwest gained 1 cent to $3.85 on the New York Stock Exchange.  New York-based Verizon fell 10 cents to $36.07.

Notebaert became CEO in 2002, taking over from Joseph Nacchio, who departed amid a U.S. Securities and Exchange Commission investigation into Qwest's accounting that later found the company misreported about $3.8 billion in sales.

Nacchio will be sued by the U.S. Securities and Exchange Commission next week for his role in the overstated sales, people familiar with the matter said today.

SEC Suits

The SEC also plans to file suits against former Chief Financial Officer Robin Szeliga, former CFO Robert Woodruff and ex-President Afshin Mohebbi, bringing to 12 the number of ex-Qwest officials who will be sued or settle with the commission next week, said one person, who asked to not be named.

``If this is true, Mr. Nacchio will defend against it vigorously, and looks forward to being vindicated,'' his spokeswoman Marcia Horowitz said of the SEC's plans, which were earlier reported by the Wall Street Journal, Denver Post and Rocky Mountain News.

David Meister, Woodruff's attorney at Clifford Chance in New York, declined to comment, as did Terry Bird, Szeliga's lawyer in Los Angeles.

``This is altogether surprising and unwarranted,'' said Mohebbi's lawyer, Paul Grand at Morvillo, Abramowitz, Grand, Iason & Silberberg in New York.  ``Mr. Mohebbi did absolutely nothing wrong, and we'll defend any case until he's vindicated.''

Bid Revision

Qwest revised the bid Feb. 24 to include a provision that pays investors cash sooner and protects them against a decline in its share price.  The people, who said that Qwest may also enhance the share-price protection clause, declined to say how much Qwest is likely to increase the proposal.

MCI reopened talks with Qwest March 2 as holders of at least 26 percent of MCI stock said Verizon wasn't paying enough. Verizon's offer, announced Feb. 14, is now worth $20.65 a share, or 16 percent less than Qwest offered.

Verizon may need to at least match any offer from Qwest, said three MCI shareholders, each of whom holds more than 2 million shares and asked not to be identified.

Capellas, 50, has been calling some of the company's shareholders in the past week to assure them that Qwest will have full access to MCI's books, said the investors.  Notebaert, 57, lamented in letters to MCI directors that Qwest was given limited access to MCI's confidential financial information.

MCI's Assets

Qwest wants MCI's 98,000-mile network for sending calls and data and its contracts with large corporate customers to help manage $17.3 billion in debt.

Pressure on Verizon to bulk up long-distance operations accelerated after SBC Communications Inc. said it would buy AT&T Corp., the largest U.S. long-distance carrier.  While San Antonio-based SBC is the second-largest local-phone company, its mobile- phone unit, Cingular Wireless LLC, last year surpassed Verizon's wireless division as the largest ranked by customers.

Qwest officials and its advisers are examining MCI's books in a process known as due diligence, that is scheduled to be completed by March 17.  Should MCI's board decide that a Qwest offer is superior, Verizon would have five days to match it.  In the event MCI agrees to be bought by another company, Verizon would be entitled to a $200 million breakup fee from MCI.

To contact the reporters on this story:
Dana Cimilluca in New York at dcimilluca@bloomberg.net.