March 1, 2005
By BRUCE MEYERSON
AP Business Writer
The International Herald Tribune

NEW YORK Qwest Communications would cut as many as 15,000 jobs if it succeeds in acquiring the long-distance phone company MCI, more than double the reduction planned by Verizon Communications in its deal to buy MCI.

The proposed cuts are detailed in a presentation that Qwest officials were planning to give investors at a meeting on Tuesday to argue the case for its renewed $8 billion bid to purchase MCI.

Qwest, which is based in Denver and is the local phone company for most of the Rocky Mountains and the U.S. Pacific Northwest, has embarked on a campaign in the past week to break up the Verizon deal, which is valued at 6.7 billion and which MCI accepted two weeks ago despite a lower price.

The presentation by Qwest, posted late Monday on the company's Web site, detailed potential cost savings of more than $10 billion over the first four years after the proposed merger with MCI.

Qwest also reaffirmed several points it made last week in improving its bid - which offered enhancements to speed the cash payoff to MCI investors and to provide downside protection on the stock portion of the deal by offering to increase the amount of Qwest stock paid if the market value of Qwest declined.

Those enhancements were designed to address concerns by MCI shareholders that although the Qwest deal offered a higher initial price, Qwest's inferior financial and strategic health made the terms more risky.

MCI, based in Ashburn, Virginia, has said its directors will evaluate the revised Qwest bid but has so far stood behind the Verizon merger as a deal offering more long-term value.

Including the cost savings, Qwest's offer could be nearly twice as valuable to MCI shareholders as the Verizon agreement, Qwest asserted.

Qwest argued again that its deal would be far less harmful to competition than a Verizon-MCI combination and therefore likely to pass government scrutiny with less objection. Qwest's chief executive, Richard Notebaert, made the same point in a letter to the editor that was published on Monday in The Wall Street Journal.

The job cuts proposed by Qwest would total 12,000 to 15,000 from the combined Qwest-MCI work force, which now employs about 81,000 people. By contrast, Verizon said it would eliminate about 7,000 jobs.

Verizon, which is based in New York and is the dominant local phone company in the Northeast and Mid-Atlantic, made its move to acquire MCI in response to a $16 billion deal by SBC Communications to acquire AT&T, announced in late January.

The Qwest deal values MCI at $24.60 per share, while Verizon's offer is worth about $20.55 a share.

Shares of MCI closed up 15 cents at $22.75 on the Nasdaq stock market on Monday. Qwest's shares rose 4 cents to close at $3.90 on the New York Stock Exchange, while Verizon fell 23 cents to $35.97 on the Big Board.

Notebaert, the Qwest chief executive, said he would use Tuesday's meeting with 250 analysts and investors to press his case on why MCI should accept the Qwest bid in preference to the Verizon deal. Notebaert said in an interview that MCI had not yet responded to Qwest's new terms. Qwest said on Monday that a combination would be immediately profitable.

Notebaert has the support of investors including Bill Miller of Legg Mason, MCI's 10th-largest shareholder, who said on Monday that he would vote against the plan to be bought by Verizon. Owners of at least 12.5 percent of MCI stock oppose the sale to Verizon, the No. 1 U.S. phone operator.

"Any rationale for preferring the Verizon offer is out the window," Miller, chief executive of Legg Mason Funds Management, which holds 5.6 million MCI shares and is Qwest's second-largest stockholder, with an 8.7 percent stake. "I'd hope that the MCI board would reopen negotiations with Qwest."

Miller is at least the second big MCI investor in two days to say he would vote against the Verizon deal at a shareholder meeting that may take place within four months.

The New York hedge fund Elliott Associates made similar comments on Friday. Other investors opposing Verizon's offer include John Paulson of Paulson and Bruce Berkowitz of Fairholme Capital Management, each holding a 3.5 percent stake; and Leon Cooperman of Omega Advisors, with 2.9 percent of MCI's shares.

Copyright (c) 2005, The Associated Press

http://www.iht.com/articles/2005/03/01/business/qwest.html