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MCI Calls Qwest's Latest Bid 'Superior'

In addition to the purchase price, Qwest would have to pay $250 million to break up MCI's agreement with Verizon.

Qwest, which protested loudly after MCI rejected its three previous offers, yesterday struck a celebratory tone.

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_____MCI Coverage_____
Qwest's Revised Bid Expires Today (The Washington Post, Apr 23, 2005)
Qwest Raises Its Bid for MCI A Third Time (The Washington Post, Apr 22, 2005)
MCI, Verizon Move to Close $7.65 Billion Merger (The Washington Post, Apr 13, 2005)
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Verizon Communications Inc.
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Qwest Raises Its Bid for MCI A Third Time (The Washington Post, Apr 22, 2005)
Merger Critics Seek Telecom Regulation (The Washington Post, Apr 20, 2005)
MCI, Verizon Move to Close $7.65 Billion Merger (The Washington Post, Apr 13, 2005)
Verizon Agrees to Buy Stake Of MCI's Biggest Shareholder (The Washington Post, Apr 10, 2005)
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"Qwest is gratified that MCI has recognized its superior offer for MCI," the company said in a statement. MCI chief executive Michael D. Capellas called his counterpart at Qwest, Richard C. Notebaert, to inform him of the board's decision yesterday morning. Following that conversation, Notebaert sent an e-mail to Qwest employees informing them of the MCI board's decision.

"[T]hey concur with what Qwest has been saying for months about the great potential for synergies and success that would result from a Qwest-MCI combination," Notebaert said in the e-mail, a copy of which was obtained by The Washington Post. "We wouldn't be in the position today, to be considered a major, credible participant in our industry, without your efforts."

MCI's board for weeks set aside Qwest's higher bids, arguing that Verizon is a stronger company, with more resources, its own wireless unit, greater access to cash, and a network concentrated in the Northeast, where many of MCI's corporate customers reside. With more than $17 billion in debt, Qwest has been considered a weaker and riskier alternative, and MCI had said that many of its customers would likely defect after a deal with Qwest.

Qwest's latest offer, equivalent to $30 a share in cash and stock, tipped the balance. The $30-a-share offer had been mentioned by MCI board members in prior discussions with Qwest. In addition, Qwest assured MCI that it would follow through on the deal even if MCI's business continues to decline in coming weeks before the sale is completed.

Qwest also was helped when it secured $800 million in additional financing from some of MCI's big shareholders, many of whom are hedge funds that favor Qwest's higher bid.

"MCI's board had no choice; they are bound to do what's best for shareholders, not employees, not customers and not creditors," said Patrick Comack, an analyst with Zachary Investment Research in Miami. If Qwest can cut costs as deeply as promised, it could be a good deal for shareholders, he said, "but MCI is better off with Verizon in terms of financial firepower."

Any deal will have to pass muster with regulators and MCI shareholders. Verizon has already filed for regulatory approval in many states and could hold a vote among MCI shareholders as early as June. In its statement yesterday, Qwest said it would quickly file for regulatory approval if MCI's board reaches an agreement.

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