The MCI board is "clearly mathematically challenged," Miller told David Milstead, finance editor of Denver's Rocky Mountain News, Qwest's hometown paper. "There must be a manual lying around MCI on how to destroy shareholder value."
That's harsh language from an erudite money manager known for his thoughtful analysis of economic trends and his meticulous mining of financial reports in search of undervalued companies.
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Plan to Merge MCI, Qwest Has A Sour Ring to It (The Washington Post, Mar 28, 2005)
Buyer Beware: Retail Stocks May Not Pay Off (The Washington Post, Mar 7, 2005)
Wall Street Is Stuck With Fannie Mae (The Washington Post, Feb 28, 2005)
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But Miller is a high roller. Legg Mason Value Trust holds only 36 stocks, giving it a far less diversified portfolio than most multibillion-dollar mutual funds. The holdings include several big local names: AES Corp. of Arlington, the worldwide operator of power plants; Capital One Financial Corp. of McLean, the credit card giant; and Nextel Communications Inc. of Reston, which was the fund's largest holding the last time it reported on its portfolio.
All have made lots of money for Washington investors who own shares of Legg Mason Value Trust. When AES was threatened with bankruptcy three years ago, its stock price fell under $1 a share; Friday it closed at $16.51. Nextel stock was down to $2.78 in 2002; now it's at $28.17 with a buyout by Sprint pending. Capital One's stock was under $25 a couple of years ago; now it's $73 a share.
Big winners like that explain why Miller has consistently beat the S&P 500's performance. Last year, Legg Mason Value Trust lagged behind the S&P until mid-December, then came from behind to end the year up 12 percent when the S&P was up 10.9 percent.
This year also will require a come-from-behind win if Miller is to stretch his streak to 15 years. As of Friday, the fund was down 7.1 percent for the year while the S&P 500 was off 5.7 percent.
The investment in Qwest has not been one of Bill Miller's greatest hits; the $300 million loss is one of the reasons the fund has been doing so poorly lately. The stock has been in the $2.50 to $5 range for the past two years. Last week it fell 50 cents a share to close at $3.52, down 21 percent so far this year.
MCI stock, on the other hand, is up 31 percent year-to-date.
MCI closed Friday at $26.03 a share. That is more than the $23.10-a-share Verizon offer that was accepted by the MCI board, and it's more than the $25.72 private deal that Verizon made to buy out MCI's biggest stockholder, Mexican billionaire Carlos Slim Helu. Qwest is offering $27.50 a share for MCI.
Miller argued in his recent letter to the MCI board that Qwest's offer was "clearly and significantly superior" to Verizon's bid.