Qwest May Not Benefit From Renewed Bid For MCI
By Ellen Sheng, Of Dow Jones Newswires

NEW YORK (Dow Jones)--Qwest Communications International Inc. (Q) has been ardent in its efforts to win over long-distance provider MCI Inc. (MCIP), but some wish the telecommunications carrier could just cool it once and for all.

Despite being rejected multiple times already, Qwest and its bankers are talking to large MCI shareholders to see if there is enough support for another bid, The Wall Street Journal reported Monday. According to the article, some major MCI shareholders have been calling Qwest, urging it to reconsider its withdrawal from the bidding war last week. Moreover, people close to the situation say shareholders are disgruntled enough to vote down the offer from Verizon Communications Inc. (VZ) if there is another option, though Qwest may need to adjust the stock portion of its offer if it decides to continue its battle for MCI.

Quest spokesman Bob Toevs said the company has "no plans to do anything further" at this time. "If shareholders vote the Verizon deal down, we would then consider our options."

Analysts say a continued battle with Verizon would not be in Qwest's best interest.

"Qwest needs to put the ego away, stop listening to the instigators, and move on to a different deal," Greg Gorbatenko of Marquis Investment Research wrote in a note. Since Qwest already backed out of the deal last week, "to go back in would convey bad corporate integrity" he said. He cited Level 3 Communications Inc. (LVLT), Global Crossing Ltd. (GLBC) and XO Communications Inc. (XOCM) as possible companies Qwest could acquire.

Though Verizon can easily raise its bid again, Qwest is reaching the limits of what it can afford, analysts added.

Any Qwest bid for MCI above $29 or $30 a share would be "counterproductive and extremely dilutive" to Qwest shareholders, Tim Horan, an analyst at CIBC World Markets Corp., wrote in a note. (CIBC has no conflicts to report.)

MCI has repeatedly spurned Qwest, favoring Verizon because it sees better long-term prospects and opportunities for cost savings. An MCI spokesman had no comment Monday.

Qwest dropped out of the bidding last Monday after MCI accepted Verizon's offer of $26 a share in cash and stock over Qwest's bid of $30 a share in cash and stock.

In prepared remarks, Qwest said it was "no longer in the best interests of shareowners, customers and employees to continue in a process that seems to be permanently skewed against Qwest." But the company never officially said it was withdrawing its offer and did not rule out the possibility of another bid.

Qwest Chief Executive Richard Notebaert has said he is keeping an "open mind" regarding the company's pursuit of MCI.

Qwest has tried so hard to pursue MCI because without it, the company will be at a serious disadvantage to other telecommunications carriers. Recent consolidation in the industry will leave Qwest as a small operator among giants. The company is losing local and long-distance phone users and does not have a wireless network. The company had hoped MCI's free cash flow would help reduce its $17 billion debt load and improve its long-term growth prospects.

Without MCI in its future, Qwest still has some options, Notebaert has said, including an opportunity to acquire any assets divested as a result of the mergers between MCI and Verizon and between SBC Communications Inc. (SBC) and AT&T Corp. (T) combination.

-By Ellen Sheng, Dow Jones Newswires; 201-938-5863; ellen.sheng@dowjones.com

Dow Jones Newswires 05-09-05  1705ET