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

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

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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