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MCI, Verizon Move to Close $7.65 Billion Merger

Proxy Statement Argues for Deal As Some Shareholders Question It

By Yuki Noguchi
Washington Post Staff Writer
Wednesday, April 13, 2005; Page E05

MCI Inc. and Verizon Communications Inc. moved ahead yesterday to close their $7.65 billion merger despite uncertainty about how much support the companies could get for the deal.

Verizon filed a proxy statement yesterday with the Securities and Exchange Commission to be reviewed by MCI's shareholders, who will eventually vote to accept or reject the deal. Although it was Verizon's filing, sources close to the companies said it was prepared in cooperation with MCI.

MCI shareholders will review Verizon's proxy statement before deciding whether to accept its offer. (Mark Lennihan -- AP)

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The document argues in favor of the merger, although some vocal shareholders say they oppose the union because Qwest Communications International Inc. has made a higher offer of $8.9 billion in cash and stock. MCI's board repeatedly rejected Qwest's offer because it is a financially weaker company.

A date for a shareholder vote has not been scheduled, but the earliest it is likely to take place is June.

Meanwhile, some MCI shareholders' frustrations seemed to intensify over the weekend, when Verizon announced its plan to buy the shares of MCI's largest shareholder, Carlos Slim Helu, for $1.1 billion in cash, or $25.72 a share.

By negotiating the private sale, Verizon will own 13.4 percent of MCI, which makes it harder for Qwest to muster sufficient shareholder support to stymie the Verizon merger. But it also prompted other MCI shareholders to argue for a payment higher than the $23.10 per share offer included in the merger agreement.

Such a reaction was anticipated by Verizon, and sources close to that company said it will likely raise its offer to benefit other MCI shareholders. MCI's board of directors has not yet approached Verizon with a request to raise its existing bid, according to those sources.

Qwest responded yesterday by reiterating its objections to Verizon's offer.

"No proxy filing can explain away the wide discrepancy between the shareholder value Qwest offered and Verizon's lower offer," Denver-based Qwest said in a statement. "We continue to listen to shareowners and their frustrations with the events of this past weekend as we evaluate our options."

The proxy details meetings between MCI of Ashburn and the two rival bidders over the course of the past nine months, during which first Qwest, then Verizon, engaged MCI in discussions of a possible merger. The intensity of the discussions increased early this year after the announcements of merger plans between Sprint Corp. and Nextel Communications Inc., and between SBC Communications Inc. and AT&T Corp.

After many meetings, MCI's board of directors declared Verizon's offer superior, according to the proxy. Combined, the companies would have a complementary set of assets and a network that extends outside Verizon's East Coast territory, giving a joined firm greater scale to serve its customers, the companies said in the proxy.

Qwest's options for making another run at MCI include raising its offer or trying more hostile options, such as soliciting shareholder support to vote down Verizon's deal. It has said a majority of MCI shareholders approve of its proposal.

MCI's board said Qwest lost because, among other things, it lacks its own wireless operations, has a high level of debt and has a volatile stock price.

In its pitch to the MCI board and its shareholders, Qwest promised it could reap $14.8 billion in savings through a merger with MCI, in part by laying off as many as 15,000 people. Verizon, by comparison, has estimated it would cut $7 billion in costs, and about 7,000 jobs.

However, in the proxy statement, MCI said its board considered Qwest's assessment of its cost-saving ability "uncertain."

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