Qwest keeps eye on MCI meeting
Some shareholders may withhold votes for directors
By Jeff Smith, Rocky Mountain News

Saturday, May 14, 2005

Qwest Communications will be watching MCI Inc.'s annual stockholders meeting in Virginia on Monday for a possible stockholder revolt.

But the Denver telco wouldn't say Friday what it would take for it to reconsider entering the bidding war for the country's second-largest long-distance carrier.
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"We're certainly monitoring the situation and keeping our options open," Qwest spokesman Tyler Gronbach said Friday.

Qwest, which has been rebuffed by MCI four times, bowed out of the bidding last week, saying it would pursue other options.  But, at the same time, the Denver telco left the door ajar.

Gronbach's comments came after reports Thursday that MCI shareholders owning more than 20 percent of the company would withhold their votes to show opposition to the MCI board's acceptance of a much lower $8.44 billion offer from Verizon Communications.  Qwest had offered $9.75 billion for MCI.

Some corporate governance experts consider 20 percent or more votes withheld to be a strong display of shareholder discontent.  However, from a practical standpoint, it won't change anything.

While all nine MCI directors are up for re-election, there aren't any opposition candidates on the proxy ballot.

And, when it comes to voting on the Verizon deal this summer, only a majority of MCI stockholders need to approve the deal.

Verizon already has secured 13.4 percent of the votes by agreeing to buy out MCI's largest stockholder, Mexican billionaire Carlos Slim Helu.  Verizon said Friday the Justice Department had authorized the company to set up a trust to help complete that purchase next week.

Gronbach wouldn't say what the magic number would be Monday for Qwest to reconsider its pursuit of MCI.

"We'll have to see," he said.

MCI spokesman Peter Lucht declined comment, including whether Chief Executive Michael Capellas was conducting some last-minute lobbying with MCI shareholders.

Several of MCI's major shareholders, such as Bruce Berkowitz of Fairholme Capital Corp., have urged Qwest to continue to pursue MCI.

But analysts say it would be natural for the shareholders to do so, partly in hopes that MCI could persuade Verizon to increase its offer before the June or July merger vote.

Qwest's latest bid was equal to $30 a share, compared with Verizon's $26-a-share transaction.

But Verizon's offer is fully protected and includes a provision that increases the value of the transaction if Verizon shares are trading above $35.52 when the merger closes.  By contrast, Qwest's bid was subject to losing value if Qwest shares fell below $3.32.

Verizon closed at $34.09, down 20 cents, on Friday, while Qwest stock was down 4 cents to $3.58.

Qwest
Q: NYSE
$3.58
- 4 cents

MCI Inc.
MCIP: Nasdaq
$25.40
unchanged

Verizon
VZ: NYSE
$34.09
- 20 cents