Feb. 15 (Bloomberg) -- MCI Inc.'s agreement to be bought by Verizon Communications Inc. for $6.75 billion faces opposition from MCI shareholders who own 11 percent of the telephone company and say the offer undervalues their holdings.

Three of MCI's top six shareholders: John Paulson at Paulson & Co.; Bruce Berkowitz at Fairholme Capital Management LLC and Leon Cooperman at Omega Advisors Inc., said MCI, the No. 2 long- distance telephone company, should reconsider a higher bid from Qwest Communications International Inc. or stay independent.

The offer is ``very disappointing for MCI owners,'' said Berkowitz, president of Short Hills, New Jersey-based Fairholme, MCI's fifth-largest shareholder with a 3.5 percent stake.

Public opposition from some of MCI's biggest investors may make it harder for MCI Chief Executive Michael Capellas to win shareholder approval for the deal. Directors voted during the weekend to pair with Verizon, the largest U.S. local-telephone provider. MCI chose Verizon's financial strength over a higher offer from Qwest, the smallest regional phone company.

New York-based Verizon is paying $20.75 a share for MCI, including $14.75 in stock, $1.50 in cash and $4.50 comprised of a special dividend and MCI's planned quarterly dividends, including a 40-cent dividend approved by the MCI board on Feb. 11.

Qwest's $23 offer comprised $15.50 in stock and $7.50 in cash. Including $1.60 in dividend payments, the bid would be valued at $24.60, or about $8 billion, said people familiar with Qwest's bid. Qwest's bid consisted of about $3 billion in cash, compared with Verizon's $2 billion, they said.

`My Money'

Shares of Ashburn, Virginia-based MCI dropped 82 cents to $19.93 yesterday after the transaction was announced amid disappointment that Verizon's offer included dividends that investors were already promised.

``Verizon is buying MCI for $14.75 of their currency and $6 of my money,'' said Cooperman, whose Omega fund in New York has 2.9 percent of MCI.

Paulson, MCI's fourth-biggest holder with a 4.1 percent stake, and Cooperman said Qwest should make its offer public and press to forge a deal with MCI. MCI shares may have traded as high as $25 or $26 had Qwest's offer been accepted, Paulson said.

``I don't think it's all over yet because ultimately this is going to have to be approved by MCI shareholders,'' New York- based Paulson said. ``If Qwest puts its offer forward, I think there's a good chance shareholders would prefer the Qwest alternative.''

Qwest spokesman Tyler Gronbach declined to comment.

`Come Forward'

``If Qwest has a superior offer, I urge them to come forward,'' Cooperman, 61, said. ``We'll have to wait and see if Qwest has a bona fide offer.''

Mexican billionaire Carlos Slim is MCI's largest shareholder with 13.7 percent. Private investment firm ESL Partners LP, run by Edward Lampert, and MatlinPatterson Global Opportunities Partners LP are the second- and third-largest.

Capellas, 50, said yesterday that MCI would have a ``brighter future'' with Verizon. MCI's board unanimously voted in favor of the Verizon bid, MCI director Dennis Beresford said in an interview. He declined to say why directors chose to go with a lower offer.

``This is a very, very experienced board that deliberated all the options,'' Capellas told reporters. ``This is the best way to get the best value. We looked at it from every conceivable way.''

The deal was announced yesterday after MCI bankers spent the weekend in talks with Verizon and Qwest. Denver-based Qwest raised its offer from $6.3 billion in cash late on Feb. 11 in an attempt to clinch the deal. Verizon on Sunday sweetened its offer, which also had been about $6.3 billion.

``It's definitely not a great Valentine's Day for MCI owners,'' Berkowitz said. ``We're not even getting a box of chocolates.''

To contact the reporter on this story: Dana Cimilluca in Princeton at dcimilluca@bloomberg.net.

Last Updated: February 15, 2005 00:04 EST