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April 13, 2005

Verizon may wait to increase bid

The fight for the number two long-distance provider in the US, MCI, took a pause yesterday, as three sets of directors remained behind closed doors and considered their next move.

By CBR Staff Writer

Following the controversial deal at the weekend between Verizon Communications and MCI’s largest shareholder, Carlos Slim Helu, there were very little real developments.

MCI’s board of directors, after issuing its frosty response to the deal, remained tip lipped, although according to anonymous sources quoted by the Financial Times, it is willing to switch its backing from Verizon to rival bidder Qwest Communications International Inc if it were to raise its bid from $27.50 per share to $30 per share.

Last week MCI was said to have approached Qwest and invited it to raise its bid to $30 a share, which it would consider superior to that of Verizon’s $23.10 offer. However Qwest declined to move off its $27.50 bid, and Verizon’s merger deal was accepted by MCI at $23.10 a share.

Meanwhile the universal criticism of the all cash deal with Carlos Slim Helu appeared to make little impression with Verizon, which remained silent over its next move, other than registering slightly more than 132 million common shares in its S-4 filing with the Securities and Exchange Commission.

Verizon caused outrage among the rest of MCI shareholders after privately negotiating a special deal to pay $1.1bn for Slim’s 13.4% MCI stake. Verizon’s private deal with Slim translated to $25.72 in cash for each of his 43.4 million shares, whereas the other MCI shareholders are only slated to receive $23.10 a share in cash and stock in Verizon’s official bid.

Yet some analysts believe Verizon is simply playing a waiting game, as it knows that it will have to raise its official offer to win the approval of the remaining MCI shareholders. Verizon may simply wait until the last possible minute to increase its offer for MCI.

Verizon could decide to increase the offer to $25.72, which would spell the end for Qwest’s chances of gaining control. Qwest is currently said to looking to raise a $1bn private-equity funding deal from a group of investment outfits, which would allow it to raise the cash portion of its $8.9bn offer, which it could put directly to MCI shareholders.

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Another hurdle remains in the form of MCI’s poison pill, which financially stretched Qwest would be unlikely to overcome. However, if the majority of MCI shareholders backed its bid, this could force MCI’s board to consider Qwest’s offer once again.

Shares in Qwest remained at $3.80 on the New York Stock Exchange as of 6pm BST on Wednesday. Verizon fell almost 0.3% to $35.09, while shares in MCI rose 0.5% to $26.22 on Nasdaq.

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