March 29 (Bloomberg) -- MCI Inc., the second-largest U.S. long-distance telephone company, accepted a new $7.6 billion takeover offer from Verizon Communications Inc., rejecting a higher bid from Qwest Communications International Inc.

Verizon offered $23.50 a share in cash and stock, including a 40-cent dividend that MCI has paid to shareholders, MCI said in a statement today distributed by PR Newswire. Qwest offered $8.45 billion, or $26 a share, in cash and stock and yesterday gave MCI until April 5 to accept its bid.

The new agreement between MCI and Verizon heightens their six- week battle with Qwest, which is seeking to break up the transaction. Verizon Chief Executive Officer Ivan Seidenberg responded to pressure from holders of more than 26 percent of MCI's shares, who said the original $6.75 billion offer was too low. MCI CEO Michael Capellas told shareholders that a combination with Verizon would create a stronger company.

``We respect the right of Verizon to change the composition and value of their bid, but we still believe our proposal creates superior value for shareowners,'' Qwest said in a statement.

MCI shareholders will oppose the new Verizon offer, said Bruce Berkowitz, president of Fairholme Capital Management LLC, which owns 3.5 percent of MCI.

``We're not done yet,'' Berkowitz said in an interview.

MCI shares fell 32 cents to $22.94 yesterday in Nasdaq Stock Market composite trading. New York-based Verizon fell 4 cents to $34.72 and Qwest slipped 3 cents to $3.75 in New York Stock Exchange composite trading.

Network, Customers

Seidenberg and Qwest CEO Richard Notebaert want MCI's 140- nation voice-and-data network and its contracts with large corporations. The deal would help Verizon keep up with SBC Communications Inc., which will become the largest U.S. phone company through its planned purchase of AT&T Corp. Verizon, which reached agreement to buy MCI on Feb. 13, was under pressure to act after Qwest boosted its bid on March 17.

A higher Verizon offer is a ``positive move because now we have the process moving,'' Qwest Chief Financial Officer Oren Shaffer said at a Banc of America Securities conference today in New York.

Capellas resisted Qwest's overtures, saying a combination with Verizon would create a stronger competitor to SBC. Notebaert publicly campaigned for his offer in the past few weeks, rallying support from MCI shareholders.

Ashburn, Virginia-based MCI rejected Qwest's first offer of $24.60 a share, choosing instead to accept the $20.18 a share cash and stock offer from Verizon.

Qwest, the fourth-largest local-telephone company, boosted its offer to $26. Qwest also said it could realize $15 billion in cost savings and get the deal through U.S. regulators quicker than Verizon. Seidenberg disputed that in letters to MCI's board.

Qwest wanted MCI's $2 billion cashflow to manage $17.3 billion in debt and MCI's contracts with large corporate customers such as Hewlett-Packard Co. to bolster its long- distance division.

Under Pressure

Verizon and Qwest are both under pressure to use deals to trim expenses amid sales declines.

As subscribers opt for wireless calling or phone service from cable operators, Verizon, which ended 2004 with 53 million access lines, has lost 6.78 million since the first quarter of 2002. Qwest has lost 2.1 million lines for a total of 15.5 million over the same period.

Some of MCI's biggest investors including Berkowitz and Leon Cooperman of Omega Advisers balked at the decision.

Opposition to the Verizon deal widened to include holders of at least 26 percent of MCI stock as Qwest promised to protect MCI holders against a decline in the stock that's part of its offer. Verizon's offer is ``too low,'' Arturo Elias, a spokesman for billionaire Carlos Slim, said on March 3. Slim, the fourth- richest person in the world, is MCI's No. 1 holder.

Capellas's Defense

Capellas defended his move in face-to-face meetings with investors. He said pairing with Verizon would suit MCI better in a contest for customers with SBC. He also highlighted liabilities that Qwest faces from lawsuits related to $2.5 billion in overstated sales.

MCI, formerly WorldCom Inc., emerged from bankruptcy protection in April last year after an $11 billion accounting fraud. Former Chairman Bernard Ebbers was convicted this month of orchestrating the fraud.

Notebaert pressed his case in interviews, meetings with investors, filings with the U.S. Securities and Exchange Commission and letters to MCI's board. He asked for a meeting with MCI's court-appointed monitor Richard Breeden after MCI halted discussions that were reopened on March 2.

Seidenberg testified about the deal in hearings in the Senate and House of Representatives. In a letter to MCI Chairman Nicholas Katzenbach, he said Qwest misrepresented the projected financial benefits and underestimated the regulatory hurdles.

To contact the reporter on this story: J. Kyle Foster in Princeton at kfoster2@bloomberg.net

Last Updated: March 29, 2005 10:19 EST