April 12 (Bloomberg) -- MCI Inc. may ask Verizon Communications Inc. to increase its $7.51 billion takeover bid after Verizon agreed to pay more for Mexican billionaire Carlos Slim's stake than it's offering other shareholders, people familiar with the matter said.
Directors of MCI, the No. 2 U.S. long-distance phone company, want Verizon to raise its $23.10-a-share bid closer to the $25.72 a share that Verizon agreed to pay Slim, said the people, who asked not to be identified.
Verizon's April 9 agreement to buy Slim's 13 percent stake angered other MCI investors including Legg Mason Inc.'s Bill Miller and makes it more difficult for MCI to keep recommending Verizon's current offer. MCI has championed the proposal from Verizon, the No. 1 U.S. phone company, spurning higher bids from Qwest Communications International Inc., the fourth-largest U.S. local- phone operator.
``Verizon will increase its price and ultimately acquire MCI,'' said Dennis Block, a partner at law firm Cadwalader Wickersham & Taft. ``They indicated by acquiring the 13 percent shareholder's equity at a premium that they're willing to increase their price to all shareholders.''
Miller at Legg Mason and Leon Cooperman of Omega Advisors Inc., both among MCI's top 10 shareholders, urged MCI directors to demand the same price for all investors.
``It appears the MCI board supports a two-tiered offer from Verizon that ranks the interests of one share owner ahead of all others,'' said Robert Toevs, a spokesman for Denver-based Qwest. Verizon spokesman Peter Thonis declined to comment on whether Verizon would raise its bid.
Speculation
Shares of Ashburn, Virginia-based MCI rose 17 cents to $26.01 yesterday in Nasdaq Stock Market composite trading, reflecting speculation MCI may fetch more than Verizon agreed to pay.
Verizon is willing to raise the offer, though not as high as it agreed to pay Slim, a person familiar with the matter said.
MCI, the former WorldCom Inc., said in a statement yesterday that its board is ``committed to obtaining the transaction that is in the best interests of all of its shareholders.'' MCI spokesman Peter Lucht declined to elaborate on the statement.
Michael Capellas, the chief executive officer of MCI, searched for a buyer after regulatory changes last year made it too costly for U.S. long-distance companies to vie for residential customers.
MCI has sided with Verizon, which has a market value of $100 billion, because it can offer a broader range of services including wireless calling and is more stable than Qwest, which has a value of $7 billion and more than $17 billion in debt.
A higher bid from New York-based Verizon would step up pressure on Qwest Chief Executive Officer Richard Notebaert to raise Qwest's offer from $27.50 a share, or $8.94 billion, or walk away from a takeover tussle now in its eighth week.
Raising Cash
Qwest is in talks to raise as much as $1 billion in private- equity funding from a group of investment companies including Legg Mason, people familiar with the matter said. The agreements, which may be clinched as early as this week, would enable Qwest to raise the cash portion of its offer, currently at $13.50 a share.
The investors would agree to hold their shares in a combined Qwest-MCI for a set period of time, possibly 180 days, to address concerns of MCI's board about the volatility of the enlarged company's stock.
``We're still prepared to consider an additional direct investment in Qwest under the right circumstances,'' said Samantha McLemore, an analyst who works with Miller, the head of Legg Mason's fund management unit, which is also Qwest's second-largest investor.
In composite trading on the New York Stock Exchange, Qwest dropped 11 cents to $3.82 and Verizon declined 17 cents to $34.90.
Verizon's Slim Purchase
Yesterday, MCI said it won't scrap a so-called poison pill that would trigger the issuance of MCI shares in the event an unsolicited buyer acquires more than 15 percent of the stock.
Keeping the defense in place inhibits Verizon from adding to its stake as MCI seeks better terms for other holders. It would also pose a hurdle should Qwest opt to take its appeal straight to investors.
The decision by Slim, the world's fourth-richest person, to sell his stake in MCI will make Verizon the top MCI shareholder. Investors including Cooperman said the offer is worth about $27.50 a share, reflecting a provision that would let Slim benefit from an increase in Verizon's stock.
