ow Jones Newswires
Buyers In Big Telecommunications Deals Face Market
Woes
By SHAWN YOUNG
NEW YORK -- A hostile market is casting an ominous shadow across some big
telecommunications deals, pushing buyers' shares down enough to potentially undermine the value
of the proposed mergers.
Interest-rate jitters and fears of damaging price competition among long-distance companies have
been hard on telecommunications stocks, particularly those of Internet-oriented upstarts. Among
them are Qwest Communications International Inc. (QWST) and Global Crossing Ltd. (GBLX).
Those companies and AT&T Corp. (T) each have multibillion dollar merger deals that guarantee
their partners a certain price as long as the buyers' own shares are trading within a certain range.
But they aren't.
The situation is most serious for Global Crossing Ltd. (GBLX), a Bermuda carrier that is building
undersea fiber optic systems. Global Crossing plans to buy Frontier Corp. (FRO), a Rochester,
N.Y., long-distance carrier, in about six weeks for $63 a share, or about $11 billion. But that price
only holds if Global Crossing's own stock is above $34.56.
Below that, the value of the deal drops and Frontier could be entitled to walk away. Global
Crossing's share price would have to be below that level on 15 randomly selected days in the
month before the deal closes for the value to be affected. The critical month should begin in late
August.
Global Crossing shares recently were down 3 1/16, or 10%, to 27 1/8 in very heavy Nasdaq
trading. Frontier's NYSE-listed stock fell 4 1/2, or 10%, earlier to 40 3/8 on nearly quadruple the
normal volume.
The other two big acquirers are further away from closing their deals, making their share prices at
the moment a less urgent concern. AT&T, the New York long-distance giant, is expected to close
its $62 billion acquisition of MediaOne Group Inc. (UMG), an Englewood, Colo., cable company,
in the first quarter of 2000. Qwest and US West Inc. (USW), both based in Denver, don't expect
their deal to close for at least a year.
Right now, though, AT&T is trading below the $51.30 price that protects the value of the
MediaOne deal; and Qwest has fallen below the $28.26 level that serves as the bottom of its
so-called "collar" on its deal with US West, the smallest of the regional Bells.
The deal between Qwest and US West allows the smallest of the regional Bells to walk away from
the deal if Qwest's average price is under 22. AT&T's deal with MediaOne doesn't have a similar
escape clause.
Shares of Qwest recently were down 3/16, or 0.7%, 26 1/16 in moderate Nasdaq trading, while
NYSE-listed shares of US West were down 1 1/8, or 2.1%, to 52 7/16 in light trading.
AT&T's NYSE-listed stock was down 1 15/16, or 3.8%, to 48 15/16 in heavy trading, while
MediaOne shares dropped 2 1/4, or 3.2%, to 67 9/16 also in heavy trading.
Global Crossing and Frontier could work out a deal to preserve their merger if Global Crossing's
shares remain under pressure as the closing date nears.
In a recent interview, Global Crossing's Chief Financial Officer Daniel Cohrs told Dow Jones
Newswires the company has the right and the resources to add stock or cash to its offer for
Frontier to keep the deal together.
That is a decision that will be made by the company's board when the time comes, Cohr said,
declining to speculate about whether the board would sweeten the deal. If Global Crossing bolsters
its offer, Frontier would not be able to back out, he said.
It is possible the companies could negotiate some compromise value if the market remains harsh.
Frontier spokesman James L. Collins declined to comment on the stock activity or speculation
about possible changes to the deal.
"We're still committed to moving forward with this deal," Collins said. "We still see compelling
strategic rationale for this deal. Nothing has changed for us."
The strategic rationale is that Global Crossing will gain a big foothold, a profitable customer base
and a cutting-edge network in the US by buying Frontier, while Frontier will become part of a
fast-growing and ambitious multinational carrier.
Qwest and Global Crossing initially fought over US West and Frontier, both of which had merger
deals with Global Crossing. After Qwest made unsolicited competing offers for both companies, it
won US West and Frontier stayed with Global Crossing.
The combination of Qwest and US West would create a local and long-distance powerhouse,
particularly once US West clears the regulatory hurdles that keep it from offering long-distance
directly to its own customers.
AT&T's acquisition of MediaOne is a key part of its strategy to offer combined local,
long-distance, Internet and cable service over cable networks.
- Shawn Young; 201-938-5248 shawn.young@dowjones.com
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