from BArron's trader
Some big US West shareholders were relieved last week when Qwest
Communications International lobbed in a hostile takeover offer for the Baby
Bell because they believe Global Crossing, which has a competing offer for US
West, is little more than a "late-stage venture capital company" with fragile,
high-priced stock, according to one US West holder.
Both Qwest and Global Crossing are upstart telecommunications companies
whose shares have soared on Internet hopes. But Qwest is farther along in its
business plan than Global Crossing and has much higher revenues. The betting
on Wall Street is that Qwest has a good shot at wresting US West away from
Global Crossing.
US West shares rose 3 1/8 to 58 last week, finishing about 14% below the
current value of Qwest's all-stock offer. Qwest's original offer for US West
was worth $80, but the value declined to $67 because Qwest's stock fell 6
15/16 to 37 15/16 as growth and momentum investors piled out.
"I'm not thrilled about getting Qwest's stock," said one institutional holder. "But
at least it's a real company."
Qwest's shares now are down from an April peak of 52 3/8, cutting its market
value to $25 billion, less than US West's $30 billion. Qwest is also making a
hostile bid for Frontier, the old Rochester Telephone, which said late last week
that it is leaning toward the Global Crossing bid.
The growth and momentum crowd wasn't happy that Qwest and Global
Crossing want to hook up with a stodgy Baby Bell. But these investors should
realize that when the market accords upstarts huge valuations, management is
tempted to use high-priced stocks to buy substantive companies.
An obscure but important tax issue could be the reason that the only two
bidders for US West are smaller companies. Under the tax code, US West's
spinoff in 1998 of MediaOne Group could be subject to a huge tax bill if US
West reaches a merger in the next year in which it doesn't end up with a
majority stake. This makes it more difficult for a larger telecom company to
enter the bidding fray. US West's chief executive, Sol Trujillo, has been
criticized for not waiting until 2000 before shopping US West and enabling a
larger company to more easily bid for the company.
US West's stock still could have some upside potential. "You could get a
higher bid from Qwest and you also could get a cash component," the investor
adds.
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