U S West Inc.
And Frontier
To Weigh Bid
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By Stephanie N. Mehta and John R. Wilke
Staff Reporters of The Wall Street Journal
The boards of U S West Inc. and Frontier Corp. will soon decide if they want to break their
commitments to undersea-cable operator Global Crossing Ltd. and accept offers from long-distance
carrier Qwest Communications International Inc.
Both boards have spurned Qwest once by refusing to take action on its unsolicited offers. But
Qwest, based in Denver, boosted its bids for both companies to a total of $47 billion, about 10%
higher than Global Crossing's combined offer of $43 billion based on Friday's closing price.
The board of Frontier, based in Rochester, N.Y., is expected to convene today to consider Qwest's
revised bid, made last week. U S West, based in Denver, said its management is "keeping the board
involved as events unfold."
Some analysts and shareholders believe the boards should find Qwest's offer superior, enabling U S
West and Frontier at least to start formal discussions with Qwest. "At this point, Qwest would be the
partner I'd choose for the dance," said Ophelia Barsketis, a fund manager with Stein, Rowe &
Farnham, which owns U S West and Frontier shares.
But board members must consider other aspects. At their board meeting, Frontier directors are
expected to review a legal analysis by Global Crossing arguing that its bid can be completed sooner
because it faces fewer regulatory and antitrust problems, which could force marketing restrictions,
divestitures or other concessions.
Global Crossing argues that any Qwest bid for Frontier is bound to take more time because the
Global Crossing merger review is already well under way. Moreover, Global Crossing contends
Qwest's acquisition is likely to take longer because it will be tied to Qwest's bid for U S West.
Global Crossing raises Qwest's relationship with BellSouth Corp. as another roadblock to winning
regulatory approval. The Atlanta-based Baby Bell, which owns 10% of Qwest, has agreed to
provide some of the cash for the deal and has said it might boost its Qwest stake.
BellSouth's stake and its "interest in possibly acquiring control of Qwest may make it more difficult
for Qwest to obtain approval of a merger with U S West without agreeing to stringent conditions
such as forced divestiture or . . . structural or accounting separation of certain lines of business," the
Global Crossing analysis concludes.
A Qwest spokesman said the company doesn't expect BellSouth's stake to have any effect on the
Justice Department's antitrust or other regulatory reviews of the deal. Further, the company said in a
statement that it "does not expect to encounter any difficulty" winning Federal Communications
Commission approval.
Qwest also released a letter from its chief executive, Joseph Nacchio, to Solomon Trujillo, U S
West's chief executive, assuring him that "there are no minefields" in the regulatory review of the
proposed deal. The deal for Frontier, he said, would have "few, if any" problems while the acquisition
of U S West "does not raise regulatory issues any more troublesome than those raised by Global
Crossing's offer."
Qwest also released a letter from former FCC member James Quello, who said that Qwest's
previously announced plan to drop long-distance service in U S West's region would address any
FCC concerns. Long-distance traffic in the region accounts for only 6% of Qwest's revenue, the
company said.
Qwest, which is building a nationwide fiber-optic network, wants to be a full-service phone
company, offering local, long-distance and Internet services nationwide. Acquiring U S West, which
offers local service in 14 Western states, and Frontier, which provides local service in Rochester,
would give Qwest bases from which to launch local telephone and high-speed Internet-access
services.
Qwest is offering U S West holders $69 in Qwest common stock for every U S West share
outstanding. Global Crossing is offering about 1.3 shares of Global Crossing for each share of U S
West. That ratio floats based on the number of shares Global Crossing would have to issue to
acquire Frontier; Global Crossing also is offering a one-time dividend of as much as $1 a share.
For Frontier, Qwest is offering $48 in Qwest stock and $20 in cash for each share of Frontier.
Global Crossing has bid $63 a share for each Frontier share.
Global Crossing has said it doesn't plan immediately to raise its bids for Frontier and U S West.
Global Crossing enjoys certain benefits from its definitive merger agreements with both companies,
including a "last look" at Frontier, which would give Global Crossing several days to respond to any
potential Frontier-Qwest agreement.
Global Crossing says its offer has another advantage: the support of U S West's major union, the
Communications Workers of America.
For the moment, both U S West and Frontier shareholders are sitting pretty: U S West shares are up
5% since Qwest made its first unsolicited offer in mid-June, closing Friday at $57.75, up 18.75 cents,
in New York Stock Exchange composite trading. Frontier shares climbed about 8% in that time,
closing Friday at $59.8125, down 6.25 cents. Shares of Global Crossing fell 12.5 cents to close at
$45.8125 in Nasdaq Stock Market trading Friday. Qwest shares rose 81.25 cents to close at
$33.875 on the Nasdaq.
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