Qwest executives are working behind the scenes to raise $2 billion from investors to increase the cash portion of its takeover bid for MCI, sources said Thursday.
Denver-based Qwest’s $8.9 billion bid for MCI, which was rejected by MCI on Tuesday in favor of a $7.5 billion bid from New York-based Verizon, is about half cash and half stock. Increasing the cash portion by $2 billion would sweeten the bid to two-thirds cash and one-third stock, without increasing the overall bid.
Meanwhile, MCI chief executive Michael Capellas indicated in a letter to MCI employees on Thursday that the company remains open to negotiations with Qwest.
Qwest’s campaign, if successful, would help soothe MCI’s board, which has expressed concern about the future value of Qwest stock.
It also would let Qwest avoid a time-consuming hostile takeover bid that could tarnish Qwest’s corporate image and cost between $25 million and $50 million, experts estimate.
The $2 billion private equity offering would work like this: Investors would commit now to buying stock in a merged Qwest-MCI on the day the deal closes. That cash would go directly to MCI shareholders in place of what now is being offered in stock.
Investors will most likely be offered the stock at below $4.15 a share, the price being offered to MCI shareholders in Qwest’s bid. The investors will pocket the difference on the day the deal closes and benefit if Qwest stock rises at any time.
“You can’t discount cash,” said John Paulson of Paulson & Co., which owns about 3.4 percent of MCI. “Cash is king.”
Paulson has not yet been contacted by Qwest about the offering but said he might be interested in participating.
Qwest is focusing on a short list of large MCI shareholders and Wall Street investors, who would each contribute $200 million, sources say.
That list includes Carlos Slim, Latin America’s richest man, and legendary Wall Street investor Bill Miller. Slim controls 13.4 percent of MCI and Miller, as chief executive of Legg Mason Capital Management, manages funds that control 1.7 percent of MCI.
“There’s a lot of billionaires circling around that could buy a piece of this action,” Paulson said.
Denver financier Philip Anschutz, who controls 16.5 percent of Qwest, will not participate in the offering, according to Anschutz spokesman Jim Monaghan.
Analysts are divided about whether another $2 billion in cash will sway MCI’s board, which has thrice rejected Qwest for lower Verizon bids.
“MCI’s board made their decision already,” said Donna Jaegers of Denver-based Janco Partners. “If it was an all-cash offer, the board would have to look at that. But I’m doubtful that Qwest can raise that kind of money.”
Qwest’s proxy firm, The Altman Group, continues to survey MCI shareholders to test support for a hostile takeover bid, in which shareholders could either vote down the Verizon merger or oust MCI’s board.
Staff writer Ross Wehner can be reached at 303-820-1503 or rwehner@denverpost.com
