MCI Inc. investor Deephaven Capital Management LLC started a fight to block Verizon Communications Inc.’s planned $8.44 billion acquisition of the telephone company, saying the price isn’t high enough.
Deephaven, which owns 5 percent of MCI’s shares, is sending proxy cards to other holders and urging them to vote against the purchase, according to a regulatory filing Wednesday. Deephaven prefers a $9.75 billion offer from Qwest Communications International Inc., which dropped out of the bidding last month.
“The shareholder base would almost uniformly like to see this voted down and would like a combination with Qwest,” said Matthew Halbower, who helps manage $3.25 billion at Deephaven in Minnetonka, Minn.
The challenge is aimed at reviving interest by Qwest chief executive Richard Notebaert in MCI, the second-largest U.S. long-distance telephone company. Denver-based Qwest, the No. 4 U.S. local carrier, in May abandoned an offer for MCI, saying the bidding was “skewed” against it after MCI for the third time accepted a lower bid from Verizon.
MCI decided Verizon’s offer of $26 a share was better than Qwest’s $30 bid, saying Verizon would better help it compete against AT&T Corp. for large customers.
Qwest won the support of some of MCI’s largest investors, including Bill Miller of Legg Mason Inc. and Leon Cooperman of Omega Advisors Inc. Qwest failed to gain the backing of MCI’s board, which sided with Verizon, the No. 1 U.S. phone company, with $97.3 billion in market value.
Deephaven’s challenge follows proxy solicitations by disgruntled shareholders at companies including Walt Disney Co. and Blockbuster Inc.
The MCI-Verizon transaction must be approved by holders of a majority of MCI’s 325 million shares. In director elections at MCI’s annual meeting in May, shareholders withheld about half the votes that would be needed to defeat the deal with Verizon.
Notebaert said later that month that Qwest was no longer looking at MCI.
“If Qwest assures the market that if Verizon’s offer is rejected, they’ll rebid, my opinion is there’s a 100 percent probability they’ll win,” said Cooperman, who has trimmed some of his 3 percent MCI stake.
Qwest spokesman Tyler Gronbach declined to comment.
