Qwest Mulling MCI Buy, Talking to Verizon

NEW YORK – MCI Inc. (MCI) has received a $6.3 billion takeover bid from Qwest Communications International Inc. (Q) and has held talks with another potential suitor, Verizon Communications Inc. (VZ), sources familiar with the situation said on Thursday.

Although MCI, which emerged from bankruptcy last year, has been looking for a buyer for months, interest in the company intensified after long-distance rival AT&T Corp. (T) last week agreed to be acquired by SBC Communications Inc. (SBC) for $16 billion, the sources said.

Long-distance phone companies have been slammed by eroding long-distance revenue, price wars and competition, but they serve the high-spending corporate customers that the Baby Bells want to tap.

MCI is weighing Qwest's proposal, but a deal is not certain because it may hold out for a higher offer from other potential suitors, one source said. Qwest may walk away if the price for MCI gets too high, the source said, but some analysts doubted a bidding war would break out for MCI given the slim growth prospects for long-distance carriers.

Verizon has not made a formal takeover offer for MCI but the two companies have held preliminary merger discussions in recent days, the sources said.

MCI and Verizon declined to comment. Qwest could not be reached for comment.

A deal with MCI would run counter to Verizon's past strategy, which was to build its corporate-services business on its own. Last week, Verizon chairman Ivan Seidenberg declined to comment on whether the company would jump into the industry's hectic merger scene.

The global telecommunications sector saw $44.3 billion in mergers in January, up from $5.8 billion in the year-ago period. Although the value of the deals soared, the number of actual deals dropped, according to research firm Dealogic.

In the wake of the SBC-AT&T news, Seidenberg said "nothing I've heard ... will change basically the importance we've placed on the enterprise market and the strategy we've selected to pursue at this point."

The Wall Street Journal, which first reported the bid from Qwest, also said MCI's largest individual shareholder Carlos Slim is considering a plan to take MCI private.

MCI emerged from bankruptcy after reorganizing in the wake of an $11 billion accounting scandal. Meanwhile Qwest also faced its own accounting probe and financial problems.

Marrying the two companies would reduce the competitors in the long-distance telephone and data market, which would ease the price wars that have battered the industry, analysts said.

Yet among potential partners, Qwest is seen as a weaker option because it lacks the high volume of customers and wireless services that Verizon would provide, analysts said.

The deal would face regulatory scrutiny, but less intense than the review of the pending SBC-AT&T deal, analysts said.

"This merger would be between smaller, struggling entities and is not a partial re-creation of the old Bell system," said Lehman Brothers analyst Blake Bath.

Shares of MCI added 47 cents, or 2.4 percent, to close at $20.15. Qwest's stock gained 20 cents, or 4.8 percent, to close at $4.40, while Verizon's stock closed at $35.90, up 2 cents.

Investors also have speculated for weeks that Verizon may launch a bid for Sprint Corp. (FON), scuttling the long-distance company's planned merger with wireless telephone company Nextel Communications Inc. (NXTL)

Although Verizon continues to keep its options open, buying Sprint is currently less attractive than making a bid for MCI or remaining solo, said one source familiar with the situation. No final decision has been made, however, the source said.

Among the top long-distance companies, Sprint has the smallest share in the market for corporate customers, making it a less attractive takeover option. The complications of Sprint's deal with Nextel and the potential risk of a lengthy regulatory review and possible divestitures also weigh against the deal, the source said.

Sprint could not be immediately reached for comment.