The following report was aired Tuesday on CNBC-TV by reporter David Faber:
"With Global Crossing stock hitting its lowest point ever today since it announced its deal to
acquire Frontier Communications, it might appear some sort of renegotiation of the deal will be in
order.
But while preparation for any negotiation should it occur is being made, the two sides may not
enter that fray - at least in part - until next week.
At present Global Crossing stock is performing miserably. It is 8 points below the bottom of its
collar on the Frontier deal meaning the value is now worth 1.82 GBLX shares for each share of
Frontier, or roughly $47.75, a level frontier's own stock is trading well below, despite what could
be a close that is only a month away.
People close to Global Crossing tell me the companies still hope to close the deal by the end of
September. Global Crossing's shareholders meeting to approve the deal is scheduled for Sept. 22,
Frontier's the day after. The pricing period for the deal is the average of 15 days chosen from the
30 days preceding the merger's close. While that exact date isn't known, it appears likely that
we're in the pricing period, and it's therefore likely that Frontier will have the right to walk
away from the deal if Global Crossing does not make up for the difference between the bottom of the
collar and the current price.
But few in the telecom industry expect such a scenario. Frontier's long-distance business is
clearly going through a downward revision of value by the market given the pricing pressure. That's
a sure argument of the Global Crossing side as the two companies discuss a different deal. As well,
Global Crossing's stock has still underperformed its poorly performing peers. While it's management
might say it doesn't need Frontier, the investors in the stock I've spoken with believe it does.
Any new deal if it comes might have to be agreed to by Sept. 8 if Global wants to keep the same
date on its shareholder vote. As well, the company is currently trying to be included in the S&P
500 index. Frontier is in that index. But because Global is not a U.S.-based company, the
combination would not be a part of the index. That would add selling pressure to the stock as index
managers sell.<<
|
