Qwest may spark MCI bidding war

US phone company Qwest has said it will table a new offer for MCI after losing out to larger rival Verizon, setting the scene for a possible bidding war.

MCI accepted a $6.75bn (£3.6bn) buyout from telecoms giant Verizon on Monday, rejecting a higher offer from Qwest. Qwest chairman Richard Notebaert sent a letter to MCI's board on Thursday saying that it plans to submit a new offer after examining Verizon's bid. Formerly known as Worldcom, MCI is a long-distance and corporate phone firm. Snapping up MCI would give the buyer access to a global telecommunications network and a large number of business-based subscribers. Shares of MCI were up more than 4% in electronic trading after the close of New York markets.

Qwest said on Wednesday that MCI had rejected a deal worth $8bn. "We would like to advise you that once we have completed our review of the Verizon merger agreement, we do intend to submit a modified offer to acquire MCI," the letter from Qwest said. Verizon's offer is made up of cash, shares and dividends, and a number of investors have said that it undervalues MCI. Verizon plans to swap 0.41 of its shares and $1.50 in cash for each MCI share, as well as offering special dividends of $4.50 a share. Both company boards have backed the deal, but regulators will still need to give their approval. As well as trying to lure investors with the promise of better returns, Qwest also reckons that its offer will face less regulatory scrutiny than Verizon's.

The takeover would be the fifth billion-dollar telecoms deal since October as companies look to cut costs and boost client bases. Earlier this month, SBC Communications agreed to buy its former parent and phone trailblazer AT&T for about $16bn. There may be concerns other than cash, however, especially as MCI only emerged from bankruptcy protection last April. Verizon is far bigger than Qwest, has fewer debts and has built a successful mobile division. Also, MCI, while trading under the name Worldcom, became the biggest corporate bankruptcy in US history after admitting that it illegally booked expenses and inflated profits. Former Worldcom boss Bernie Ebbers is currently standing trial, accused of overseeing an $11bn fraud. Qwest, meanwhile, had to pay the Securities and Exchange Commission $250m in October to settle charges that it massaged earnings to keep Wall Street happy.