MCI reached out to spurned suitor Qwest over the weekend, asking the company to increase its existing $8.9 billion bid – an offer that MCI has already rejected in favor of a $7.5 billion bid from Verizon.
Qwest refused to go higher, a source familiar with the matter said Sunday, telling MCI to take another look at the existing offer, which comes to $27.50 per MCI share.
“Qwest isn’t going to bid against itself,” the source said.
Later Sunday, the Qwest board met to discuss its options, a day after New York- based Verizon scooped up the biggest single block of MCI shares from Mexican billionaire Carlos Slim Helu.
Verizon chief executive Ivan Seidenberg flew to Mexico to negotiate with Slim in the past two weeks and let him know that Verizon was willing “to cut a special deal with him,” The Wall Street Journal reported.
Qwest reportedly had previously courted Slim, who controls 13.4 percent of MCI stock.
Verizon’s deal with Slim, announced Saturday, is for $1.1 billion cash, or $25.72 a share.
Taking Slim out of the picture appears to give Verizon an edge over Qwest in the fight for MCI, yet other MCI shareholders are angry that Slim will receive more than the $23.10 per share cash-and-stock offer that is part of Verizon’s merger agreement with MCI.
Legg Mason Capital Management’s Bill Miller, who holds 1.7 percent of MCI shares, told MCI chief Michael Capellas in a letter Saturday that shareholders would be “outraged” if the board doesn’t insist that all shareholders receive the $25.72 per share cash price Slim has agreed to take from Verizon.
“There can be no reason for the board to support an offer to MCI owners that is substantially inferior to what Verizon has just agreed to pay for a non- control block of stock,” Miller said in the letter.
Legg Mason also owns 13 percent of Qwest shares.
Sources close to Qwest said over the weekend that Qwest has the cash and financial backing to boost its bid for MCI to $30 a share, or $9.75 billion. But Qwest chief executive Richard Notebaert reportedly declined a request from MCI last week to go that high.
Qwest said Sunday that even without Slim, it has the support of MCI shareholders who control more than 50 percent of MCI’s stock. If Qwest were to formally launch a hostile bid for MCI, it would need to win a majority of shares voted.
Qwest hired a proxy- solicitation firm to survey MCI shareholders last week, but it wouldn’t identify which shareholders it has in its camp.
Leon Cooperman, whose Omega Advisors holds about 2.9 percent of MCI’s stock, said from his New York home Sunday that support remains strong for the Qwest offer but that ultimately shareholders will vote for the best bid.
“It is a question of economics,” he said.
On Saturday, one of MCI’s largest shareholders, Bruce Berkowitz, whose Fairholme Capital Management controls 3.4 percent of MCI, said the Verizon deal with Slim had lessened his support for Qwest.
Berkowitz has said in the past that he supports Qwest’s bid over Verizon’s.
MCI, based in Ashburn, Va., didn’t return calls for comment Sunday afternoon.
Eric Rabe, a Verizon spokesman, said the company will assess the situation as it moves toward a shareholder vote on the merger, which is expected to come sometime in June or July.
Qwest could still triumph, said Janco Partners analyst Donna Jaegers.
But the hedge funds and sophisticated Wall Street investors who control about 70 percent of MCI shares may be able to persuade Verizon to pay them the same amount as it is giving Slim, she said.
Staff writer Tom McGhee can be reached at 303-820-1671 or tmcghee@denverpost.com.
