Qwest Seen Buying U S West, While Global Crossing Gets Frontier
Bloomberg News
July 7, 1999, 3:32 p.m. PT
Qwest Seen Buying U S West, While Global Crossing Gets Frontier
Denver, July 7 (Bloomberg) -- The competition between Global
Crossing Ltd. and Qwest Communications International Inc. to buy
U.S. West Inc. and Frontier Corp. could well result in a draw,
with the rival bidders splitting the spoils, analysts said.
Qwest will likely win the battle for U S West and Global
Crossing will come away with Frontier as a result of regulatory,
management and stock issues, analysts said.
''That scenario works out to the benefit of everybody,''
said Tom Burnett, president of New York-based Merger Insight,
which tracks mergers and acquisitions. ''Global Crossing gets a
big breakup fee and Qwest gets a major company with 25 million
customers in 14 states.''
Global Crossing, a two-year old phone company that's
building an undersea network, agreed in May to buy U S West for
$33.9 billion and Frontier Corp. for $12.9 billion. Qwest, the
No. 4 U.S. long-distance phone company, in turn offered $69 a
share, or $40.5 billion, for U S West and $68 a share, or
$13.8 billion, for Frontier.
Talks are ongoing and still face hurdles. For instance, U S
West wants to merge with Qwest as an equal, not agree to a
takeover proposed by the smaller phone company, people familiar
with the talks said.
Global Crossing and Qwest declined to comment, while U S
West and Frontier officials weren't available.
Analysts cited several reasons why they expect Global
Crossing to end up with Frontier and Qwest to get U S West.
Under terms of their agreement, if U S West accepts a buyout
offer from another company, money-losing Global Crossing will
receive an $850 million breakup fee that it could use to pay for
its network.
Regulatory Hurdles
A Global Crossing purchase of Frontier could be completed by
year end, months ahead of any U S West purchase, because it's not
expected to face a tough regulatory review, analysts said. Global
Crossing needs a nationwide U.S. network to complement its
undersea network. Frontier has a coast-to-coast network, while
U S West is a regional company.
In addition, some investors don't like Global Crossing's
offer for U S West because it involves a special stock issue and
would result in co-chief executives.
''Global's offering for Frontier doesn't involve tracking
stocks and management issues that we have with U S West,''
Burnett said. A purchase of Frontier by Global ''can be done
quickly and close the by end of October,'' he said.
Under Global Crossing's agreement with U S West, it must
succeed in buying Frontier first or their merger is voided.
Qwest's offer carries no such contingency.
Qwest needs a local U.S. phone network to lower the costs
that it pays other carriers to complete its calls. U S West's
network spans 14 western states. Qwest persuaded U S West to
engage in talks Thursday after raising its offer.
Global Crossing, based in Hamilton, Bermuda, plans to file a
proxy statement for the Frontier transaction with the Securities
and Exchange Commission as soon as today.
Tracking Stock
Under the U S West-Global Crossing agreement, shareholders
of each would own 50 percent of the combined company. The new
entity would issue two separate stocks, one to track its long-
distance and Internet units, and another for the local phone
business.
In addition, Global Crossing Chief Executive Robert
Annunziata and U S West Chairman Solomon Trujillo would run the
company as co-chief executives. The combined company's 22-member
board would have 10 directors appointed by Global Crossing, 10
designated by Denver-based U S West and two chosen by mutual
agreement. The company would set up new headquarters to New York. |
