- The Washington Times - Sunday, May 1, 2005

NEW YORK (AP) — The bidding for MCI Inc. turned more suspenseful this weekend without a peep from Verizon as one deadline passed and another fast approached to counter a higher-priced offer from Qwest.

Qwest Communications International Inc. has said its nearly $10 billion offer will be withdrawn at midnight tonight if MCI’s board does not officially switch its support away from a deal with Verizon Communications Inc. by that time.

One week ago, MCI declared its $7.5 billion deal with Verizon inferior to the Qwest bid and indicated it would change its recommendation to shareholders if it did not receive a revised proposal from Verizon. All three telephone companies declined to comment yesterday.

That declaration by the Ashburn, Va., long-distance phone company triggered a provision in the merger agreement giving Verizon five days to respond with an improved offer or request a breakup fee of $250 million.

Verizon let that window expire at midnight Friday without a word, making good on assertions earlier in the week that it was under no obligation to act. The company said the existing deal also entitles it to wait for MCI shareholders to vote on the buyout at the current price of $23.10 per share.

But Verizon’s silence is no sure sign the New York provider of phone, cellular and Internet service has decided to stand pat.

Analysts and investors have said Verizon likely is trying to construct a “final” offer it hopes will close the door on Qwest and any further bidding in the three-month auction.

Although Qwest presented its latest offer of $30 per share as its “best and final” proposal, the Denver company may have both the inclination and the backing to boost its bid a fourth time.

A person familiar with Qwest’s planning, speaking on condition of anonymity, said the company had been contacted last week by four more MCI shareholders interested in providing cash commitments. Qwest used $800 million in similar guarantees from other MCI shareholders in raising its bid to the current level.

MCI has been hit hard by competition and a bankruptcy brought on by the WorldCom scandal but still possesses a valuable customer base and national fiber-optic network.

Verizon already has won MCI’s favor twice with a lower-priced bid than Qwest, so it also might not need to match Qwest’s latest offer of $30 per share to keep the deal on track.

Prevailing sentiment holds that Verizon is prepared to raise the price tag at least as high as the $25.72 it recently agreed to pay MCI’s largest stockholder, Carlos Slim Helu, for his 13.4 percent stake.

That deal also includes an option to increase Mr. Slim’s payoff if Verizon’s shares rise by the time the proposed MCI deal closes. Such “upside protection” also might be offered to the rest of MCI’s investors.

MCI’s board has justified accepting Verizon’s lower offers out of concern for Qwest’s $17.3 billion debt load and weak market footing. The board also has questioned Qwest’s forecast of $2.8 billion per year in cost savings from the proposed merger.

However, hedge funds and other short-term investors are pressuring MCI to secure the biggest payoff possible, and the wide gap between the offers makes it more difficult to argue that long-term investors would be served better by the Verizon deal.

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