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Sat, Feb 19, 2005 - Page 12 News List

Qwest sweetens deal to outbid Verizon for MCI

TAKEOVER BATTLE After being rebuffed by MCI, the No. 2 US long-distance phone company, Qwest outlined plans to beef up the cash portion of its offer

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Richard Notebaert, chief executive officer of Qwest Communications International Inc, who plans to sweeten an US$8 billion offer for MCI Inc, is stepping up pressure on MCI to reconsider an agreement to be bought by Verizon Communications Inc.

Shares of Ashburn, Virginia-based MCI rose as much as 4.5 percent in extended US trading on Thursday after Qwest said it would change the bid once it reviews Verizon's US$6.75 billion offer.

"We feel very strongly about this," Notebaert said in an interview on Thursday.

Notebaert's plan, outlined in a regulatory filing on Thursday, shows Qwest isn't walking away after being rebuffed by MCI, the No. 2 US long-distance phone company. He was spurred on by some of MCI's biggest shareholders, who said Verizon isn't paying enough.

Denver-based Qwest may raise the cash portion of its cash and stock offer to outbid Verizon for MCI, said John Hodulik of UBS AG.

MCI agreed on Feb. 13 to be bought by New York-based Verizon.

Qwest, the No. 4 US local-phone company, said MCI never responded to its Feb. 11 offer and that Qwest was given limited access to MCI's financial statements.

MCI CEO Michael Capellas held meetings this week to convince stockholders that a combination with Verizon would attract more customers and help MCI compete with SBC Communications Inc.

Verizon's US$20.75 bid comprises US$14.75 in stock, US$1.50 in cash and US$4.50 in MCI dividends. Qwest offered US$24.60 a share for MCI, including US$15.50 in stock, US$7.50 in cash and US$1.60 in dividends.

Shares of MCI rose US$0.94 to US$21.60 in extended US trading on Thursday after declining US$0.21 to US$20.66 in NASDAQ Stock Market composite trading.

Qwest management has indicated it has financing that would let it "substantially" increase the cash portion of the bid, Hodulik wrote in a note to clients on Thursday. Hodulik, who has a "neutral" rating on the stock, led a group of investors to meet with Qwest executives in Denver on Thursday.

"Momentum is certainly shifting back toward Qwest," said Tim Gilbert, a fixed-income analyst at Des Moines, Iowa-based Principal Global Investors LLC, which oversees US$125 billion in assets, including Qwest bonds. "Qwest now stands a chance of at least making Verizon come back to the table."

Shares of Verizon fell US$0.44 on the New York Stock Exchange to US$35.68 and Qwest fell US$0.13 to US$3.84.

"We would expect MCI and its advisers to engage us in a meaningful dialogue regarding the merits of our offer," Notebaert said on Thursday in a letter to MCI directors, which was filed with the US Securities and Exchange Commission.

Verizon spokesman Peter Thonis declined to comment. MCI spokesman Peter Lucht didn't return a telephone call.

Qwest's offer is better than Verizon's because it would take less time to win clearance from regulators and MCI shareholders would take part in about 40 percent of the benefits, Notebaert wrote in the letter. MCI shareholders would own about 5 percent of a combined Verizon and MCI.

SBC plans to buy AT&T Corp for US$16 billion. When that deal closes, if Verizon succeeds in acquiring MCI, Verizon and SBC would control 42 percent of the US business telecommunications market, said Chuck White, vice president of researcher TNS Telecoms. The two companies would dominate about one-third of consumer spending on phone services.

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