updated 3/29/2005 12:11:53 PM ET 2005-03-29T17:11:53

MCI Inc. accepted a sweetened $7.64 billion takeover proposal from Verizon Communications Inc. on Tuesday that raises the price tag by $1 billion, but is still nearly a billion dollars shy of the latest bid for the long-distance phone company from Qwest Communications International Inc.

The new offer from Verizon increases the amount of cash being paid and provides protection against a possible decline in the value of the Verizon shares that MCI investors will receive, the companies said in a statement.

Qwest said it will reassess the situation, but reiterated its position that it has submitted a superior offer valuing MCI at $8.45 billion, or $26 per share.

Verizon has now agreed to pay $23.50 for each MCI share, consisting of Verizon stock worth at least $14.75 and $8.75 in cash. In the original deal reached by Verizon and MCI in mid-February, Verizon was to pay $14.75 in stock and $6 cash for each MCI share.

Both the Verizon and Qwest offers include a 40-cent cash dividend paid by MCI to its shareholders earlier this month, as well as future MCI dividends scheduled to be paid before the proposed deal is completed.

MCI said that in making its determination, its board of directors considered the need for Verizon’s size, resources, reputation with customers, and wireless capabilities as key to survival in the telecommunications market.

“MCI’s board has been closely and carefully evaluating all of the recent developments,” Nicholas deB. Katzenbach, MCI’s chairman, said in a statement. “We believe Verizon’s substantial increase in its offer, the strength of its competitive position and the financial certainty at close make this offer compelling to our shareholders, customers and employees.”

MCI shares rose 67 cents, or 2.9 percent, to $23.61 in midday trading on the Nasdaq Stock Market. Verizon’s stock rose 54 cents, or 1.6 percent, to $35.26 on the New York Stock Exchange, where Qwest rose 6 cents, or 1.6 percent, to $3.81.

The new deal comes about two months after SBC Communications Inc. agreed to pay $16 billion to acquire AT&T Corp., setting off the scramble by Verizon and Qwest to respond with a buyout of MCI.

AT&T and MCI are both losing revenues and customers with the collapse of long-distance phone service as a viable standalone business.

The two companies have been hurt badly by competition from Bells such as Verizon and SBC, as well as well cell phones and Internet-based phone service, all of which offer unlimited national calling for a set rate.

The situation worsened dramatically last year when a court put an end to federal requirements that the Bells lease their local phone lines to rivals at discounted rates, making it more expensive for AT&T and MCI to compete with their own unlimited local and long-distance plans.

This is now the second time MCI has opted for a lower payment from Verizon out of concern about Qwest’s questionable financial health and business prospects. When MCI’s board accepted Verizon’s original $6.75 billion offer, it did so with an $8 billion bid on the table from Qwest.

The persistent worries about Qwest were seen as a likely reason why a much stronger Verizon wouldn’t need to match the Qwest offer if it chose to raise its bid.

However, in the month and a half since the first MCI-Verizon deal was reached, Qwest has raised its bid by a half-billion dollars and Verizon’s stock has declined.

That widened the financial gap between the competing offers to a level which increased pressure on MCI’s board from its shareholders to reconsider Qwest’s courtship.

The reported new bid from Verizon comes one day after Qwest issued a one-week deadline for MCI to accept its latest proposal.

“We respect the right of Verizon to change the composition and value of their bid, but we still believe our proposal creates superior value for shareowners,” Qwest said in a statement. “We are going to assess the situation and determine what is in the best interests of shareowners, customers and employees.”

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