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Qwest: Gunning Too Hard for MCI?

By Christopher Palmeri and Brian Grow Qwest Communications (Q) Chairman and Chief Executive Richard C. Notebaert has come out slugging in his attempt to snatch MCI (MCIP) from a $6.7 billion merger with Verizon Communications (VZ). But his tactics could backfire. One source close to MCI's board, who declined to be identified, says board members are miffed that Notebaert has publicly accused them of not sharing information with him. "This is a board that takes its fiduciary duties very seriously," he says. A Qwest spokesperson declined to comment.

Notebaert started punching on Feb. 17 when he sent a letter to MCI Chairman Nicholas Katzenbach. In it, Notebaert chided MCI's board for not responding to his last offer and for providing what he called limited access to information about the company.

"SUBSTANTIAL ACCESS." Then, in a Feb. 28 editorial in The Wall Street Journal, Notebaert called on federal regulators to block the Verizon-MCI deal, arguing that the mergers combining MCI and Verizon and SBC Communications (SBC) and AT&T (T) would create a competition-stifling duopoly. "Concentration inflates bureaucracy, reduces pricing competition, limits innovation and works to frustrate effective regulation," Notebaert wrote.

MCI shot back in a letter on Mar. 1. In it, Katzenbach notes that MCI and Qwest had a number of discussions, including 25 in-person meetings and more than 50 joint conference calls over the past seven months. He said during that period, "Qwest was given substantial access to MCI legal, financial and operational information."

MCI's board is expected to reconsider Qwest's revised $8 billion bid as early as Thursday, Mar. 3. Meantime, Notebaert isn't doing much to win over MCI's rank and file. In a briefing with MCI investors on Mar. 1, he outlined cost savings in a proposed merger that could eliminate as many as 15,000 employees. The combined companies would currently have a total of 82,000 workers.

SQUEEZED OUT? Notebaert also may be giving some Qwest shareholders reason to bolt if he doesn't win MCI. In the Journal editorial he said the combined Verizon-MCI and SBC-AT&T would posses clout that would "make it extremely unlikely that any other player can grow market share." Those behemoths, he said, would "flex their muscles to squeeze out smaller competitors, emptying the playing field." Qwest, presumably, would be included.

Notebaert is pulling no punches in his effort to win MCI, but his wild swinging so far could cause more harm than good. Palmeri is a correspondent in BusinessWeek's Los Angeles bureau, and Grow is a correspondent in Atlanta

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