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Deephaven Wants to Deep-Six MCI-Verizon

Qwest CEO Richard Notebaert has said it's time to move on after MCI accepted a lower takeover offer from Verizon, but at least one institutional investor isn't ready to give up.

Deephaven Capital, which owns nearly 5 percent of MCI shares, is launching a last-ditch effort to convince other shareholders to reject the Verizon deal in hopes that Qwest will return to the table.

"Deephaven believes that the proposed merger between Verizon and MCI is not in the best interests of MCI stockholders," the hedge fund said in a filing with the Securities and Exchange Commission. "We are soliciting your proxy to vote against the proposed merger with Verizon."

MCI will hold a special shareholder meeting this summer to vote on Verizon's $8.4 billion offer. The Ashburn, Va., long- distance and network services provider said an exact date has not yet been set.

Deephaven preferred Qwest's $9.7 billion offer; however MCI's board felt Verizon was the better partner. Among the factors cited by MCI were: Qwest's overall financial picture; questions about its ability to invest in new capabilities; doubts about synergies; and feedback from current enterprise customers.

Deephaven acknowledges it has "no knowledge of Qwest's plans or intentions to engage in a merger combination with MCI in the event that the merger with Verizon is voted down, and there can be no assurance that Qwest will make another bid for MCI."

A spokesman for Denver-based Qwest was not immediately available for comment.

Qwest and Verizon pursued MCI because of its large IP data-service deals with government agencies and corporations. And with the pending merger of SBC and AT&T , neither wants to be left behind by the wave of industry consolidation.

The Baby Bells consider those long-term, high-margin contracts crucial to their future prosperity, as cable operators, VoIP upstarts and wireless carriers try to hone in on their traditional businesses.



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