Qwest Communications International boosted its bid for MCI again yesterday, offering $8.94 billion just two days after the long-distance...

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DENVER — Qwest Communications International boosted its bid for MCI again yesterday, offering $8.94 billion just two days after the long-distance phone company accepted a sweetened $7.51 billion proposal from Verizon Communications.

Shares of MCI, formerly known as WorldCom, rose sharply for a third straight day as investors speculated that the biggest telecom bidding war since the Internet bubble would push the final takeover price beyond what Verizon has agreed to pay.

MCI’s stock rose 45 cents yesterday, or 1.8 percent, to a one-year high of $24.90 on the Nasdaq Stock Market. Qwest’s shares slid 7 cents, or 1.9 percent, to $3.70 on the New York Stock Exchange, while Verizon’s rose 7 cents to $35.56 on the NYSE.

Soon after the new bid was disclosed, The Wall Street Journal reported that Verizon was exercising its right to force a vote by MCI investors on the merger before a special shareholder meeting scheduled next month. Verizon spokesman Eric Rabe declined comment.

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MCI said the board will review Qwest’s latest offer and “respond accordingly.”

The new Qwest offer was accompanied by a strongly worded letter from Chief Executive Richard Notebaert to MCI’s board accusing its members of “favoring one bidder over another” to the detriment of MCI’s stockholders.

The letter set a Monday deadline for a response before the offer would be withdrawn.

In the letter, Notebaert said Qwest was “particularly dismayed that MCI did not contact us to discuss our willingness to adjust our offer prior to signing the amended merger agreement, a step MCI deliberately chose not to take even though it certainly could have benefited shareholders.”

MCI’s board has already twice rejected high-priced bids from Qwest, questioning its financial health and ability to compete against larger, well-heeled rivals such as SBC Communications — the company that set off the scramble for MCI with a deal to acquire AT&T two months ago.

Verizon deal

The deal with Verizon, the dominant local phone company in the Eastern United States and a top wireless operator, values MCI at $23.10 per share, consisting of $8.35 in cash and the remainder in Verizon shares.

Qwest not only increased its offer to $27.50 per MCI share, up from $25.60, but raised the cash portion of the bid to $13.50 per share from $10.10 in the prior offer. Overall, nearly $4.4 billion would be paid in cash, reducing the amount of Qwest stock issued to MCI shareholders to $4.5 billion.

And despite the reduction in the stock portion of the deal, the new proposal included two provisions meant to ease worries that any Qwest shares issued might not hold their value.

One provision offers to boost the amount of Qwest stock paid if its share price falls below a certain level before the proposed deal is completed.

The other would enable Qwest to substitute cash for about $2 billion worth of the stock to be paid to MCI investors, a response to concerns that a flood of new stock may dilute the value of existing Qwest shares.

The $2 billion would be raised through third-party financing, Qwest said.

Hedge-fund view

Telecommunications analyst Donna Jaegers of Janco Partners said she believed hedge-fund managers — short-term investors who are among MCI’s largest shareholders — will be pleased with the Qwest deal.

However, she estimated that Qwest and MCI would have to spend $1 billion to $1.5 billion to transfer customers to a blended nationwide fiber-optic network.

“This all makes a good Power Point presentation but it’s going to be very, very difficult to merge those networks,” she said.

Banc of America Securities analyst David Barden said the new offer suggests Qwest has come to terms with key MCI stakeholders, but he predicted Verizon could win the bidding war with a revised offer.

“The ball is back in Verizon’s court and our baseline assumption is it will to come back to MCI with an improved offer,” Barden wrote in a research note.

Qwest and Verizon have been battling for weeks for MCI in an effort to land the Virginia-based company’s lucrative corporate and government customers, as well as millions of residential customers.

Denver-based Qwest, with local phone service in 14 mostly Western states and a nationwide fiber-optic network, is weighed down by $17 billion in debt and lacks a wireless division.

MCI has far less debt, but like AT&T is steadily losing revenue and customers with the collapse of long-distance phone service as a viable standalone business.