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March 31, 2005

Qwest hires proxy specialist

In a sign of its determination not to give up its fight to acquire the long-distance telephone carrier MCI, spurned bidder Qwest Communications International has hired a proxy consulting firm, a move could lead to the bypassing of MCI's board and trigger a hostile takeover fight.

By CBR Staff Writer

Qwest has hired New York-based the Altman Group, which specializes in building shareholder support for hostile takeovers. While the move triggered speculation of a hostile takeover battle, Qwest is also reportedly considering upping its offer for MCI.

According to various media reports, the Altman Group has already begun calling smaller institutional investors of MCI who could become swing votes if Qwest launches a hostile bid for MCI. The callers are asking MCI shareholders how much stock they own in order to gather intelligence for Qwest’s next move.

Earlier this week, MCI’s board spurned Qwest’s $8.45bn takeover offer and accepted a $7.64bn bid from New York-based Verizon. This was despite a large number of prominent MCI shareholders that had already gone public over the past few weeks questioning MCI’s decision to accept a lesser value bid from Verizon (then worth $6.75bn).

On Wednesday night, the Denver Post spoke to Arturo Elias, the spokesman for Mexican billionaire Carlos Slim who owns 13.7% of MCI’s stock. We are studying both offers and we think for the moment that both are insufficient, said Elias.

Qwest’s board also apparently gathered on Wednesday to consider their options, but the company made no official comment.

If the Denver, Colorado-based telecoms operator decides to pursue a hostile takeover bid, it has several options at its disposal.

It could firstly launch a campaign to persuade a majority of MCI shareholders to vote against the Verizon-MCI deal at the shareholders meeting to be held in June or July. Or it could go directly to MCI shareholders with a tender offer to buy a majority of MCI’s stock. MCI is thought to have a poison pill to dissuade hostile bidders, but this could be overcome.

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What remains to be seen is whether Qwest has the financial ability to conduct a hostile takeover battle. At the end of 2004, Qwest had nearly $16.69bn of long-term debts and just $1.77bn in cash and liquid assets. The carrier lost $1.79bn for the year as revenues fell 3.4% to $13.81bn.

By contrast Verizon ended 2004 with long-term debts of $37.67bn and just $4.55bn of liquidity, but its business generated $71.28bn of revenue, net income of $7.83bn, and $21.82bn of cash.

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