Frontier, bygones? Focus US West
Qwest Ignores U S West Brushoff,
Urges Talks
By Jessica Hall
Reuters
Tuesday, June 22, 1999; 12:54 p.m. EDT
NEW YORK — Qwest Communications International
Inc. persisted Tuesday in its bid to acquire local phone
company U S West Inc., despite the Baby Bell's brushoff
of Qwest's $33.6 billion takeover offer.
Just hours after U S West's board of directors said it
would take no action on the Qwest proposal, Qwest
Chairman Joseph Nacchio urged U S West to enter into
talks on Qwest's proposal.
U S West late on Monday said it would continue to
monitor the situation surrounding the Qwest bid, but it
reaffirmed the Denver-based company's plan to merge
with upstart telecommunications company Global
Crossing Ltd. in a $31.2 billion deal.
Qwest, the No. 4 U.S. long distance telephone company,
last week launched separate, unsolicited bids to acquire
both U S West, and local and long distance phone
company Frontier Corp. , attempting to woo them away
from Global Crossing.
Qwest and Global Crossing, telecommunications
newcomers building fiber optic networks, both want to
acquire U S West and Frontier to gain local telephone
connections to customers, and wireless phone and data
services.
Under U S West's merger agreement with Global
Crossing, U S West cannot entertain negotiations with
Qwest or any other suitor unless U S West's board
decides it received a takeover offer superior to the
Global Crossing offer.
Frontier last week also said it would take no action on
the Qwest bid and reaffirmed its plan to be acquired by
Global Crossing.
At current share prices, Qwest's bid does not offer
enough of a premium over the Global Crossing deal to
motivate U S West and Frontier to break their current
merger agreements, analysts said. U S West also would
owe Global Crossing $850 million if it breaks the
merger pact.
Qwest could sweeten the term of its bids, add some cash
on its own or with a partner, or add a so-called collar
on the offer that provides protection in case of a drop in
Qwest's stock price, analysts said.
"The next move has to come from Qwest. The only
person who has to act at all is Qwest. U S West and
Frontier have reviewed the bids and decided to maintain
their current course. Life is status quo for them. To
change the status quo, Qwest needs to act," said one
arbitrager, who declined to be named.
Qwest declined to comment on its bidding strategy. In a
letter to U S West Chairman Solomon Trujillo, Nacchio
said he was "disappointed" by the board's decision.
"We encourage the U S West board to take all actions
necessary to enter into discussions with us regarding our
offer so that we can conclude a business combination
that is in the best interests of U S West's shareholders,
customers and employees," he wrote.
U S West said its board considered several factors in
evaluating the Qwest bid, including the volatility of
Qwest's stock price and the lack of protection for U S
West if the stock price dropped. Qwest's shares have
fallen about 18 percent since the Denver-based company
announced its bids for U S West and Frontier. Shares of
Qwest were unchanged early Tuesday afternoon at
$36.625 on Nasdaq.
U S West also said it was concerned that there was no
assurance that its expansion strategies would be carried
out if it joined forces with Qwest. With the Global
Crossing deal, U S West will gain access to the
undersea and international fiber optic communications
networks Global Crossing is building.
"The writing was on the wall that there was too much
confusion and volatility surrounding the Qwest bid.
There was uncertainty about the stock price, (and) the
strategy," said independent telecommunications analyst
Jeffrey Kagan.
"U S West mapped out its concerns for Qwest. If Qwest
wants to win, it should come back with a way to address
all those concerns instead of just keep saying that their
deal is better," said one industry analyst who declined
to be named.
If Qwest strengthens its offer or its stock price rebounds
and restores the higher value of the bids, Qwest still
could emerge as the victor, analysts said.
Qwest has several advantages over Global Crossing,
including its longer track record, experienced
management team and existing operations. Global
Crossing, meanwhile, launched its initial public offering
less than a year ago and has only begun to build its
networks, analysts said.
At midday, Shares of Global Crossing gained 62.5 cents
to $47.94 on Nasdaq. U S West shed $1 to $57.31 and
Frontier added 12.5 cents to $57.94; both trade on the
New York Stock Exchange.
© 1999 Reuters
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