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MCI on Saturday embraced Qwest’s $30-a-share takeover bid, finally favoring the feisty Denver phone company over rival suitor Verizon.

The long-distance provider’s decision marks the high point so far for thrice-rejected Qwest in the bitter 11-week bidding war for MCI.

“We are very excited,” said John Paulson of New York- based Paulson & Co., which owns 3 percent of MCI. “Qwest- MCI is a terrific combination.”

Qwest’s bid, which MCI’s board declared “superior” to a $23.10-a-share merger agreement with Verizon, includes almost twice as much cash as the Verizon bid.

But it’s unlikely the fight is over.

New York-based Verizon, which has a market value 14 times greater than Qwest’s, has much riding on an MCI merger. MCI would help Verizon – or Qwest – compete for the upcoming U.S. government Networx contract worth up to $20 billion.

“This is a meaningless victory for Qwest,” said Pat Comack, an independent telecom analyst. “Verizon will lock this in with a quick counteroffer of between $26 to $27 (a share).”

Ashburn, Va.-based MCI is Qwest’s best – some say only – chance to save its shrinking phone business and manage its roughly $17 billion in debt.

Colorado also has a lot riding on Qwest. The company, whose service territory stretches from Oregon to Minnesota, has 11,000 workers in Colorado and is the state’s largest business in terms of revenues.

“Maybe this story will have a happy ending,” Denver Mayor John Hickenlooper said Saturday. “I am more than a little interested.”

A tale of two Bells

Qwest and Verizon are both regional Bell operating companies. But Verizon, with a market value of $94 billion, serves the densely populated Northeast and owns the nation’s second- largest wireless business. Qwest, worth only $6.45 billion, doesn’t own wireless, sold its cash-generating yellow pages and has been dogged by an accounting scandal.

“If Verizon wants to win the bidding war, it can,” said Donna Jaegers, an analyst with Denver-based Janco Partners. “It holds all the cards.”

Verizon has until Friday to make a counteroffer, according to the merger agreement it signed with MCI in late March.

But the telecom giant could also walk away from the deal and pocket a $240 million breakup fee and $10 million in expenses from MCI.

It could also profit from a deal it struck April 9 to buy 43 million MCI shares for $25.72 each from Mexican billionaire Carlos Slim Helu. If a Qwest-MCI deal closes, Verizon could sell those shares to Qwest for $30 – and get the $186 million difference.

Mort Pierce, chairman of the Mergers and Acquisitions Group at New York-based law firm Dewey Ballantine, said Qwest and MCI may also want to pay additional “walk-away” money to Verizon.

Qwest and MCI cannot sign a merger agreement, nor begin a one-year regulatory approval process, until Verizon is out of the picture, he said.

Verizon can force a shareholder vote on its merger agreement even if it doesn’t make a counteroffer.

TIMELINE

Key dates in Qwest’s fight for MCI July 1: MCI management tells its board that both Verizon and Qwest have shown interest in “a strategic transaction.” The disclosure is not made public. Early February: Qwest and MCI reportedly discuss a $6.3 billion takeover deal. Feb. 14: Verizon announces its $6.7 billion deal to buy MCI. Late February: Qwest renews its failed bid for MCI, with an $8 billion offer. March 2: Verizon allows MCI to discuss Qwest’s bid over the next two weeks. March 17: Qwest raises bid for MCI to nearly $8.5 billion. March 28: Qwest sets deadline of midnight April 5 for MCI to take or leave offer. March 29: MCI rejects Qwest a second time and accepts a new sweetened offer by Verizon of $7.5 billion. March 31: Qwest bumps its bid to $8.9 billion, increasing the cash component. April 4: Verizon threatens to withdraw its offer if the MCI board decides that Qwest’s bid is superior. April 5: Qwest declines MCI’s request to raise its bid. MCI rejects Qwest for the third time. April 8: Qwest begins a campaign to raise $2 billion in cash from private investors. April 9: Verizon buys out MCI’s largest shareholder, Mexican billionaire Carlos Slim Helu, gaining a 13.4 percent stake of MCI for $1.1 billion. April 12: Verizon files for a vote – to be held in the summer – by MCI shareholders on the Verizon/ MCI deal. Wednesday: The Denver Post reports that Qwest and MCI have continued talks involving MCI’s request that Qwest raise its bid from $27.50 a share to $30. Thursday: Qwest raises its bid for MCI long distance to $30 a share, calling it a “best and final” offer and setting a 3 p.m. Saturday deadline for MCI to respond. Saturday: MCI declares Qwest’s $9.75 billion bid ($30 a share) “superior” to Verizon’s bid of $23.10 a share. Friday: Deadline for Verizon’s counteroffer. Verizon also can proceed with its summer shareholder vote or walk away from the deal and pocket a $240 million breakup fee and a $10 million expense reimbursement. FROM DENVER POST RESEARCH AND WIRE SERVICES

Verizon looks at options

Verizon defended its proposed MCI merger and said it is considering all of its options.

Qwest said it was “gratified” by MCI’s decision and expects MCI to “build upon its declaration of superiority with specific acts of support,” including seeking regulatory approvals for the deal.

Qwest announced its $30-a- share offer Thursday, which included $1 billion in new bank financing and $800 million in cash raised from investors that control 13 percent of MCI. Those investors include Omega Advisors, Legg Mason Capital Management, American Express and Citadel Investment.

Verizon and Qwest have both been courting MCI since last summer. But the bidding intensified in late January when SBC Communications announced its $16 billion acquisition of AT&T to form the largest telecommunications company in the United States.

Staff writer Ross Wehner can be reached at 303-820-1503 or rwehner@denverpost.com .