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MCI Shareholders: Verizon's Slim Deal Sounds Shady

Carlos Slim Helu has been a problem for Verizon .

MCI's largest shareholder has criticized Verizon's $23.50 per share takeover bid for the network services provider. But then Verizon offered Helu $25.72 per share for his 43.4 million MCI shares.

Problem solved.

"While this was an opportunity for us to purchase a block of shares under unique circumstances and is an important step forward in our acquisition of MCI, we will continue to assess the situation as we move toward a vote by the MCI shareholders," Verizon CEO Ivan Seidenberg said in a brief statement.

The deal, which comes to $1.1 billion for 13 percent of MCI, was announced Saturday -- a day the stock market is closed and newsrooms operate with skeleton staffs.

But it didn't take long for word to spread over the weekend and for MCI shareholders and rival MCI bidder Qwest to blast the agreement.

Bill Miller, CEO of Legg Mason Capital Management, which holds MCI shares in its funds, called on MCI's board to demand the same price for all equity holders.

"Shareholders would be outraged if the board did less than insist that the identical terms be made available to all other owners," Miller said in a letter to MCI CEO Michael Capellas.

The private pact negotiated with Helu has a number of advantages over Verizon's merger proposal on the table for other MCI shareholders, Miller said.

For example, Helu will receive his cash in just a few weeks, while other MCI shareholders would wait until the transaction officially closes -- a potentially lengthy process that involves regulatory approval. And other financial stipulations in the deal nudge the value of Helu's sale closer to $27 per share, Miller estimated.

"For the board to continue to insist that the prior offer of $23.50 is sufficient and fair would be unconscionable," Miller said. "If presented with any offer from Verizon that is less than the present value of what they are paying Mr. Slim, we will vote against it."

Peter Thonis, a Verizon spokesman, said the carrier won't comment beyond Seidenberg's statement. As for Miller's criticism, Thonis noted that Legg Mason is "a major Qwest shareholder." An MCI spokesman was not immediately available for comment.

Qwest, repeatedly rebuffed in its $8.9 billion effort to buy MCI, also criticized Verizon's end-around.

"By entering into its deal with Mr. Slim, Verizon has both created two classes of shareholders and called into question the MCI board's previous determination that Verizon's lower offer to the other MCI shareholders was superior and fair," Qwest said in response. "We believe Qwest has a superior proposal for all shareholders."

Qwest is still weighing its options, which could include a hostile takeover bid for MCI.