Lawrence Chin, portfolio manager for Peter Cundill & Associates (Bermuda) Ltd., which owns 1.7 percent of MCI's stock, urged MCI directors to examine any new bid closely.
"I think MCI should consider all its options," Chin said. "The bid from Verizon was a bit too low. We would love MCI's board to give Qwest a fair chance."
Qwest chief executive Richard C. Notebaert said MCI's board has not responded to Qwest's $8 billion bid for MCI, which has accepted a $6.75 billion bid from Verizon.
(Neal Ulevich -- Bloomberg News)
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A source close to the MCI board of directors, who spoke about the private deliberations on condition of anonymity, said Verizon won the bid because it is a more stable partner for financial and strategic reasons.
Verizon, the largest phone company in the United States, has deeper pockets and operates in the densest business areas of the country, where MCI has many corporate and government customers. Qwest does business mostly in the West and Northwest and is saddled with $17 billion in debt.
MCI board members were concerned about potential fallout from a Justice Department probe of former Qwest executives involved in the company's past accounting problems, the source said. The federal government could block Qwest from getting new contracts with the government, which could poison MCI's large government-contract base, the source said.
In the letter yesterday, Notebaert argued that the Qwest deal is better for shareholders because it would require a less lengthy regulatory review than a Verizon-MCI union, which the companies have said could take about a year to complete.
Also, he wrote, Qwest's deal would give MCI shareholders a 40 percent stake in a combined company, far more than Verizon's deal, which would leave MCI shareholders with less than 4 percent of the combined company.
"We would like to remind you that Qwest's proposal is superior to the Verizon proposal," Notebaert wrote.
He said MCI's board had not responded to Qwest's most recent offer, which was submitted Feb. 11. Katzenbach said that offer was reviewed and rejected.
"Qwest is showing some spunk. They want MCI, so why not take it all the way?" asked Scott Cleland, chief executive of market research firm Precursor in Washington. "They have a legitimate point. They made a bigger offer, and it would be easier and quicker to get through the regulatory hurdles" because Qwest is smaller, he said.
Word of Qwest's appeal came after the market closed yesterday. MCI shares closed down 21 cents, at $20.66 a share. Shares of Verizon closed down 44 cents, at $35.68. Qwest shares closed down 13 cents, at $3.84.
