Qwest Communications has lined up considerable support among a group of MCI's biggest shareholders for a $2 billion equity infusion as part of a strategy to persuade MCI's board to endorse a sweetened bid from the group.
Qwest, which has been battling Verizon Communications for control of MCI, the second largest US long distance carrier for about seven weeks, is still considering a range of options including possibly increasing its current offer for MCI to between $28.50 and $29-a-share, taking its existing or a revised offer direct to shareholders or waging a proxy battle for control of MCI.
However, people close to the discussions say the company believes there may be an opportunity to avoid a proxy battle if it can win the support of MCI's board for a revised bid without raising its current offer of $27.50-a-share as high as the $30-a-share MCI is reported to have asked for.
They believe that MCI's board, which has already rejected three bids from Qwest, would be more inclined to declare a new proposal from Qwest superior to Verizon's $7.6 billion agreed takeover if it can produce commitments from this group of well known institutional investors.
The group, which includes Carlos Slim, the Mexican billionaire who is MCI's biggest shareholder, and a handful of other "significant" investors, are understood to have been asked to commit about $200m each to the funding.
A number of other large investors in MCI, perhaps controlling up to 30 per cent of the stock, have told Qwest that they continue to support Qwest's bid over Verizon. Some of these investors, including John Paulson of Paulson & Co and Bill Miller of Legg Mason, have said publicly that they will vote against the current Verizon offer if and when it is taken to a shareholder vote.
Under the terms of the latest agreement between MCI and Verizon, Verizon has the right to force a vote on its offer, even if the MCI board eventually declares Qwest's offer superior. That means Verizon's offer would have to be rejected before a counter offer from Qwest could be considered.
People close to the discussions say Qwest remains concerned that even if it sweetens its bid further, MCI's board might still reject it. They note that instead of focusing on the value of Qwest's offer, MCI has highlighted a range other issues most recently suggesting its customers would prefer a merger with Verizon. They noted, however, that this objection apparently disappeared if Qwest was willing to pay the $30-a-share demanded.
While no new discussions between Qwest and MCI have been scheduled, MCI's board made it clear when it rejected Qwest's last bid that it remained open to further discussion a point underscored yesterday by Michael Capellas, MCI's chief executive.
In a letter to MCI's employees, Mr. Capellas wrote: "We should have a better idea of their next steps in the near future," but he added that the board did not want to "jeopardize the certainty of our agreement with Verizon for the uncertainties surrounding the current Qwest proposal."