Verizon Buys MCI

U.S. telecom Verizon
Communications Inc. clinched a deal to buy long-distance
carrier MCI Inc. for $6.8 billion, outflanking rival Qwest
Communications International Inc., sources familiar with the
situation said Monday.

The competition over MCI came in the wake of SBC
Communications Inc.'s proposed $16 billion acquisition of
long-distance telephone company AT&T Corp. and a wave of
mergers among wireless telephone companies.

Although MCI and its long-distance rivals have suffered
from shrinking revenues and increased competition, industry
analysts say the companies' high-speed data networks, lucrative
corporate customers and vast sales and marketing teams make
them attractive buyout targets for the Baby Bells, the dominant
local telephone companies.

The Verizon offer consists of cash and stock, and is
expected to be approved by the boards of both Verizon and MCI
before Monday morning New York time, sources familiar with the
situation said. It values MCI at a slight premium to its $6.6
billion market value on Friday.

Qwest had hiked its takeover offer on Sunday to $7.3
billion in stock and cash, valuing MCI at $23 a share, a 10.8
percent premium. Qwest, the dominant local phone company in 14
states from Minnesota to Washington, previously had bid $6.3
billion.

"BETTER GROWTH OPPORTUNITIES"

Analysts had said MCI could justify to shareholders
accepting a lower offer from Verizon.

"Verizon does not need to top Qwest's offer for its bid to
be more appealing to MCI shareholders, in our view," Legg Mason
analyst Daniel Zito said in a research report before news of
the deal.

In addition to serving a larger and more dense local
telephone market, Verizon also owns part of the No. 2 U.S.
wireless carrier, Verizon Wireless, and boasts "better growth
opportunities, stronger balance sheet, and an ability to pay a
greater dividend," Zito said.

Verizon, the largest U.S. telecom by revenues, initially
had offered a similar price to Qwest's first bid, but then
tweaked its offer over the weekend, sources told Reuters.

MCI, which has about $20 billion in annual revenues and a
market capitalization of $6.6 billion, could not immediately be
reached for comment. Qwest declined to comment while Verizon
could not be reached for comment.

Verizon sees MCI as a way to quickly enter the market for
providing communications services to large corporations. MCI is
the No. 2 player in the multinational communications market
behind AT&T, while Verizon serves mostly small and mid-sized
businesses.

Buying MCI would save Verizon the time and money of
building a corporate-services business on its own. Yet, MCI
would require significant investments to upgrade and integrate
its networks, sources familiar with the situation said.

Qwest had seen MCI's $5 billion in cash and steady cash
flow as a way to help it manage its $17 billion in debt.

Shares of MCI closed up 1.42 percent at $20.75 in Friday
trading on Nasdaq. Meanwhile, Verizon shares gained 0.75
percent to close at $36.31 and Quest dipped a penny to close at
$4.15 in Friday trading on the New York Stock Exchange.

As MCI weighed the takeover bids, it had to look at the
price tag, the currency used -- cash, stock or a mix of both --
as well as long-term growth prospects offered by each suitor.

Verizon's stock has risen less than 1 percent over the past
12 months, while Qwest has fallen 5.7 percent.  (Additional
reporting by Sarah Coffey in New York)