Miller may aid bid by Qwest

Legg Mason manager might provide cash

MCI suitor could bolster offer

Funds leader opposes a takeover by Verizon

April 09, 2005|By Laura Smitherman | Laura Smitherman,SUN STAFF

Legg Mason's William H. Miller III, a vocal opponent of the proposed merger between phone companies MCI Inc. and Verizon Communications Inc., may put his investment firm's money into the fight.

Miller, one of the most respected money managers at the Baltimore firm, backs Qwest Communications International in a bidding war for MCI and has said he would vote against an MCI-Verizon merger. Yesterday, he ventured further into the fray by indicating he would consider funneling money into Qwest to help the Denver-based company bolster its bid.

Such an investment from Legg Mason, a major Qwest shareholder, would be out of the ordinary for mutual fund firms, which typically voice their opinions in corporate governance matters by voting their shares for or against mergers and other proposals that are subject to shareholders' approval.

"That is unusual," said Jeff Kagan, an independent telecommunications analyst. "But Qwest wants the deal real bad. They're not ready to walk away."

MCI has rejected offers from Qwest three times and instead chosen to partner with Verizon, even though Verizon is offering less money. MCI's board of directors has expressed concerns about Qwest's finances. The board kept open the possibility of further talks even as it announced this week that it preferred Verizon's $7.5 billion bid. Qwest's offer was $8.94 billion.

Qwest is reportedly seeking to raise $2 billion from third parties, an option the company floated last month when it presented its latest cash-and-stock offer. At that time, Qwest said it would substitute $2 billion in cash for part of the payment in stock.

"The company is involved in discussions with people strongly interested in this private equity plan," Qwest spokesman Bob Toevs said.

Samantha McLemore, a Legg Mason analyst who works with Miller, confirmed that Qwest approached the firm about an equity offering. She declined to comment on how such an offering would be structured. One possibility would be to advance money in exchange for stock in a new company formed by Qwest and MCI. If the deal didn't go through, Qwest would repay that amount with interest.

"We are willing to consider putting new equity into Qwest under the appropriate conditions," McLemore said. "We're big shareholders of Qwest, and we've been in touch with them throughout this."

Legg Mason Capital Management, which Miller runs as chief executive officer, owns 240 million Qwest shares and 5.6 million MCI shares. The Qwest holdings were worth about $943 million at yesterday's market close; the MCI shares, about $154 million. Miller's funds do not own Verizon stock.

Kagan said Miller and other investors opposed to an MCI-Verizon combination are focused on the money, whereas MCI's officers and directors believe that such a merger would be better for the company's long-term health.

"The shareholders want the biggest bid because it would put money in their pocket right now," he said, "and the officers want the best deal for the company going forward."

Qwest and New York-based Verizon are local-phone companies looking to expand their business through a merger with MCI, the second-largest long-distance phone company, based in Ashburn, Va. They're following on the heels of local-phone company SBC Communications Inc.'s planned acquisition of AT&T Corp. for $16 billion.

Analysts say the telecom sector will see more mergers - and possibly more acrimony - in coming years as companies seek to offer a range of services from phone to cable to Internet.

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