Has Corvis Corp. (Nasdaq: CORV) got enough of a war chest to outbid Qwest Communications International Inc. (NYSE: Q) for the assets of Allegiance Telecom Inc? (See Corvis to Sell $300M in Notes.)

That's the talk on the street, as wacky as it sounds. The question hangs in the air, as Corvis Corp., the owner of Austin, Texas-based carrier Broadwing Inc., announced it is raising up to $300 million by selling convertible notes to several investors. The investors involved won't be disclosed until the Securities and Exchange Commission (SEC) paperwork is filed later this week.

Corvis has dropped plenty of hints lately that it is in a buying mood. But this time the company will likely avoid fishy acquisitions in favor of substantially adding to its business (see Corvis Dorsal Deal: A Huber Spin-In?). Excluding the note offering, Corvis has more than $300 million in cash and investments, and it recently added an M&A executive to its staff (see Huber's OCG on Ice ).

Earlier, Qwest said it would buy Allegiance Telecom Inc.'s assets for $300 million in cash plus $90 million in convertible debt. But the courts are allowing higher bids, since Allegiance is under Chapter 11 bankruptcy protection, and Qwest, probably anticipating a bidding war, has been steadily raising funds since its announcement. The bids are due today, and the court will announce the winner on Thursday.

Corvis has consistently been rumored to be involved in the bid for Allegiance. "We believe other bidders, potentially Corvis Corp./Broadwing and XO Communications Inc. (OTC: XOXO), among others, could trump Qwest and offer a better outcome for stakeholders," writes Needham & Co. analyst Vik Grover in a note to clients this morning.

But getting Allegiance may not be possible for Corvis. As of November, Qwest had more than $6 billion in cash and investments, giving it a considerable advantage. "It's tough when Qwest steps in, because Qwest has a lot of money," says James Breen, an analyst with Thomas Weisel Partners.

Corvis wants Allegiance -- or some similar assets such as those held by Focal Communications Corp. (Nasdaq: FCOM) or ICG Communications Inc. (Nasdaq/Frankfurt: ICGX), sources close to the company say. It wants to save between $3 million and $6 million a month in access or local loop charges it has to pay other carriers for terminating the long-distance voice and data traffic that traverses its core transport and switching network. It can do this by owning facilities that shorten the distance between Broadwing's hubs and its customers.

Andy Backman, Corvis's VP of investor and public relations, says Corvis can't comment specifically on Allegiance. He says the company's fundraising shows it has staying power in the market and will fund its rollout of new services, as well as any acquisitions that make sense. He says the purpose of any acquisition would be, not just to trim Broadwing's access costs, but to increase its market presence and to add customers.

Corvis shares climbed $0.09 (3.80%) to $2.46 in trading on Monday, a 246 percent improvement from its year-ago share price. After hours, its shares fell $0.02 (0.81%) to $2.44. The company, which reports earnings for its fourth quarter and full year 2003 on Thursday, is expected to lose about 9 cents a share on revenues of about $140 million, according to analysts surveyed by Reuters Research.

— Phil Harvey, News Editor, Light Reading