Merger News today:
DENVER (CBS.MW) -- Shares of US West surged Friday after a
report that the Baby Bell may be acquired by Global Crossing.
US West's stock (USW: news, msgs) rose as
much as 3 1/16 after the cable channel CNBC
reported that Global Crossing may merge with the
Bell in an all-stock deal valued at $35 billion. In
recent trading, the stock was up 3/8 to 60 3/8.
Bermuda-based Global Crossing, which is already
in the process of acquiring independent phone
carrier Frontier Corp., is building an undersea
high-speed fiber optic network linking all the
continents.
The combination of US West, Global Crossing
and Frontier would create a giant telecommunications carrier with local,
long-distance and international assets and a focus on lucrative high-speed
data and Internet services. Such an entity could pose a challenge to the
largest, most diversified U.S. carriers, AT&T and MCI WorldCom.
Shares of Global Crossing, whose soaring stock (GBLX: news, msgs) has
allowed the carrier to pursue major acquisitions, slid 11/16 to 59 5/16 in
recent trading. Frontier (FRO: news, msgs) fell 2 3/4 to 56 1/8. Global
Crossing announced in March that it would buy Rochester, N.Y.-based
Frontier for $11.2 billion.
US West spokesman David Beigie declined to comment. "We don't
comment on rumors and speculation," he said. Global Crossing and
Frontier officials could not immediately be reached for comment.
Merger mania
Increasingly, carriers are bulking up, triggering a wave of industry
consolidation, in an effort to offer customers end-to-end communications
-- local, long-distance, data, Internet and wireless services. US West,
which operates in 14 Western states, is one of the few remaining large
carriers without a major partner. Speculation has been rampant that the
company would seek one out.
Still, an agreement hinges on the companies' ability to reach an agreement
on price and other issues, CNBC reported.
Frontier, for example, might be able to stymie the deal, though analysts
believe its concerns would have been addressed before Global Crossing
pursued US West.
Executive control could pose another roadblock. Robert Annunziata, the
recently anointed chief executive of Global Crossing, would want to
remain in charge. Sol Trujillo, the CEO and chairman of US West, could
be handed the chairmanship of the combined entity to eliminate that
problem, analysts say.
Also, the purchase of US West might not be able to be accounted for as a
pooling of interest, meaning the merger would be taxable, said Rex
Mitchell of NationsBanc Montgomery Securities. That could put off large
US West shareholders.
As it is, the purported Global Crossing offer would not represent much of
a premium. US West has a market value of about $30 billion, though
analysts say it's among the lowest-valued carriers.
US West trades at a price-to-earnings multiple of 20.7. By comparison,
AT&T trades at a multiple of 32.4, Bell Atlantic 28.4 and BellSouth 27.6,
to name just a few examples.
Federal regulators would be sure to scrutinize any merger. Current law
bans the Bells from offering long-distance services, though regulatory
experts say that may change later this year or early in 2000.
Jeffry Bartash is an online reporter for CBS MarketWatch. |
