DENVER - Qwest Communications International Inc. executives are working behind the scenes to raise $2 billion from investors so that it can increase the cash portion of its takeover bid for MCI Inc., sources said yesterday.
Qwest's $8.9 billion bid for MCI, which was rejected by MCI on Tuesday in favor of a $7.5 billion bid from New York-based Verizon Communications Inc., is about half cash and half stock. An additional $2 billion would increase the bid to two-thirds cash and one-third stock.
MCI Chief Executive Officer Michael D. Capellas indicated in a letter to MCI employees this week that the company remains open to negotiations with Qwest.
Qwest's fund-raising campaign, if successful, would help soothe MCI's board, which has expressed concern about the future value of Qwest stock. It would also allow Qwest to avoid a time-consuming hostile takeover bid that could tarnish its corporate image and cost $25 million to $50 million.
In the $2 billion private equity offering, investors would commit now to buying stock in a merged Qwest-MCI on the day the deal closes. That cash would go directly to MCI shareholders in place of what now is being offered in stock.
The investors probably will be offered the stock at less than $4.15 a share - the price being offered to MCI shareholders in Qwest's bid - and would pocket the difference on the day the deal closes and benefit if Qwest stock rose at any time.
"You can't discount cash," said John Paulson of Paulson & Co., which owns about 3.4 percent of MCI. "Cash is king." He said he might be interested in the offering.
Qwest is focusing on a short list of large MCI shareholders and Wall Street investors, each of whom would contribute $200 million, sources say.
That list includes Carlos Slim, Latin America's richest man, and legendary Legg Mason investor William H. Miller III. Slim controls 13.4 percent of MCI, and Miller, chief executive of Legg Mason Capital Management, manages funds that control 1.7 percent of MCI.
Denver financier Philip Anschutz, who controls 16.5 percent of Qwest, will not participate in the offering, a spokesman said.