03/16/2005

By SANDY SHORE  / Associated Press

The government's fraud lawsuit against a handful of former high-level Qwest Communications executives comes as the company prepares a new offer for MCI Inc. — its only focus as it tries to win a bidding war with Verizon Communications, according to a spokesman.

"From Qwest's viewpoint, we are focused on the future," Qwest spokesman Steve Hammack said Tuesday after the Securities and Exchange Commission filed its complaint in Denver federal court. "Any allegations that concern conduct at Qwest relate to events that took place many years ago."

Still, the allegations will put Qwest's multibillion-dollar accounting scandal before the public once again.

"It basically reminds the MCI board that Verizon has a clean history and Qwest has a troubled history like MCI," said Scott Cleland, chief executive of the independent research firm Precursor Group.

Qwest Communications International Inc. is expected to sweeten its $8 billion offer for Ashburn, Va.-based MCI before Thursday, a deadline set for their negotiations to conclude. The bidding war that broke out last month after MCI rejected Qwest's higher bid in favor of a $6.8 billion offer from Verizon.

Qwest revised its cash-and-stock bid by offering to speed up the cash payoff to MCI investors and to guarantee the value of the stock portion of the bid.

The Qwest deal values MCI at $24.60 per share, consisting of $9.10 in cash and $15.50 worth of Qwest shares. Verizon is offering $6 in cash and stock currently worth $14.70, valuing MCI at $20.70 per share.

Analysts have speculated that Qwest will increase the cash portion to satisfy MCI and its shareholders. New York-based Verizon would have five days to match any offer.

MCI and some investors are concerned because Qwest is weighed down by more than $16.7 billion in long-term debt, does not own a wireless division and faces competition from cable and high-speed data companies.

Qwest has countered that its nationwide fiber-optics network is a good fit with MCI. It also argued that because Verizon and MCI's operations overlap in some areas, their merger would create a company with too much market share and clout.

Verizon has said its purchase of MCI would strengthen a competitor in that market because it does not have a national network.

Last fall, Qwest agreed to pay $250 million to settle SEC charges of fraud without admitting wrongdoing. The deal did not cover former executives.

The SEC on Tuesday charged former Qwest Communications CEO Joseph Nacchio and six other executives with orchestrating a "massive financial fraud" that concealed the source of billions of dollars in Qwest revenue that was later wiped off the books.

Verizon declined comment and MCI officials did not return calls.

Analyst Donna Jaegers of Janco Partners Inc. said she believes the MCI board will have to weigh Qwest's growth outlook in making its final decision.

"Qwest was offering a portion of the bid in stock, so the MCI board has to decide what's the real value of the stock and is that value going to improve in the future or is it going to deteriorate," she said.

Qwest stock closed down 5 cents, or 1.3 percent, at $3.86 a share on the New York Stock Exchange.

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