Qwest bid backed by Miller of Legg Mason

April 07, 2005|By Laura Smitherman | Laura Smitherman,SUN STAFF

Legg Mason's star mutual fund manager William H. Miller III said he will vote against the proposed merger between MCI Inc. and Verizon Communications Inc. after he failed to persuade MCI's board to accept a different offer.

Miller fired off a letter Tuesday to MCI Chairman Nicholas deB. Katzenbach expressing support for Qwest Communications in its bid to woo MCI away from Verizon. Miller's last-ditch effort failed, and the MCI board decided late Tuesday that it would stick with Verizon and again reject a higher offer from Qwest.

"If the latest Verizon offer is presented to shareholders for approval, we intend to vote against it," Miller wrote. He called Qwest's offer "clearly and significantly superior to Verizon's."

Legg Mason Capital Management, which Miller runs from Baltimore as chief executive officer, has made a big investment in Ashburn, Va.-based MCI, the second-largest long-distance phone company. Legg Mason is one of the largest MCI shareholders with 5.6 million shares, about 2 percent of the total.

Miller is not alone in spurning the Verizon bid. Other investors, including the company's biggest shareholder, Mexican billionaire Carlos Slim, have said the offer is too low. Miller couldn't be reached to comment further yesterday.

Miller has a history of rattling cages in corporate boardrooms. He weighed in on Eastman Kodak Co.'s plan to move into digital cameras several years ago. And he has met with a group of fund managers organized by retired Vanguard founder John Bogle to discuss using their influence as investors to influence corporate behavior.

Legg Mason could have more leverage in a combined MCI-Qwest because it also holds 240 million Qwest shares. Miller said his funds don't hold Verizon stock.

Qwest shares "offer significant investment merit not well understood by the market," Miller wrote. "If we thought the shares of Verizon offered similar potential, we would own them. We do not."

Miller is regarded as one of the most talented fund managers. His Legg Mason Value Trust has outperformed the S&P 500 stock index for 14 consecutive years.

The three-way bidding war began two months ago. Verizon's latest stock-and-cash bid values MCI at $23.10 a share. Qwest's offer is up to $27.50 a share.

Denver-based Qwest provides local telephone service, mostly in Western states. New York-based Verizon dominates in the East.

MCI's board has said it is concerned that customers wouldn't like a merger with Qwest and indicated that Verizon is on more stable financial footing. MCI spokesman Peter Lucht declined to comment on Miller's letter.

Michael Capellas, MCI's chief executive officer, met with Miller's team to explain the board's reasoning and the risks associated with Qwest's proposal. Miller said he didn't buy Capellas' argument.

"Those are risks we are more than willing to take, since we believe the potential rewards are sufficiently large for long-term owners to compensate us for those risks," Miller wrote.

Besides, Miller said, MCI shareholders are game for taking risks. They own stock in a company that two years ago, when it was known as WorldCom, made the largest bankruptcy filing in U.S. history.

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