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Qwest's MCI Bid Born of Need to Expand Its Base

By Yuki Noguchi
Washington Post Staff Writer
Friday, April 8, 2005; Page E01

Qwest Communications International Inc., hot to outbid a rival and acquire a big telecommunications company, boasted that its offer was "obviously superior."

"Qwest offers greater reliable synergies and upside potential," the company's chairman and chief executive said.


Qwest CEO Richard Notebaert said buying MCI could result in $15 billion in savings. (David Zalubowski -- AP)

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Those claims are not a recent rationale for buying MCI Inc. They date to mid-summer 1999, when Qwest and Joseph P. Nacchio, who was chief executive then, fought for and won regional telephone provider US West Inc. for $41.5 billion in stock. The merged company was hailed as a technology powerhouse for the future, offering "integrated wireline and wireless services, and broadband and Internet capabilities that are truly cutting edge."

Echoes of that battle can be heard as Denver-based Qwest tries to win control of MCI. In repeated letters to MCI's board of directors, Qwest's current chief executive, Richard C. Notebaert, has attacked MCI's deal with rival Verizon Communications Inc., declaring Qwest's bid to be superior because it is higher and because it could reap more savings. MCI shareholders would also own nearly 40 percent of a combined MCI-Qwest -- far more than the 4 percent they would own in a combined MCI-Verizon, he said.

But Qwest is a very different company from what it was in 1999. It is heavily in debt, has little cash, and weathered a crippling accounting scandal. Its traditional business is shrinking and it sold US West's cellular phone business, which means it isn't a technology powerhouse with both wireless and land-line services.

It is largely those business dynamics that have pushed Qwest to pursue MCI: A deal would give Qwest more cash, a profitable customer base, and the size and national scope it claims it needs to compete with other big telecommunications companies.

It also is the state of Qwest's current business that appears to be the chief reason MCI has given Qwest a chilly reception despite its persistent overtures.

Qwest made an initial offer for Ashburn-based MCI and has raised it twice, and all three times it has been spurned. Now, the company is considering retooling its offer or soliciting shareholder support for a hostile takeover.

Qwest's dogged pursuit of MCI did not surprise many analysts. Notebaert said Qwest can reap $14.8 billion in savings out of a merger with MCI, largely by cutting as many as 15,000 jobs.

Qwest is more than $17 billion in debt and wants MCI's $5.5 billion in cash and cash equivalents to help offset it.


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