<..$95 target by when??..>
Analyst's target prices are usually 12 months out - sometimes 6-12 months, and on occasion, up to 18 months. In this case, Grubman's call is for $95 in 12 months, with significant upside to that, as he clarified, considered likely.
Make no mistake, the #2 II rated (and multi-year All-Star) telco analyst in the US has made a very bullish recent call on MCLD, and has gone on to explain why, if GBLX/USW goes through (which it might not - according to stockholders) this would *additionally* be particularly beneficial to MCLD.
Fwiw, here's a GBLX/USW piece from this evening's Dow tape:
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=DJ Wall Street Keeps Booing Global Crossing Deal Plans >USW
By Shawn Young
NEW YORK (Dow Jones)--Investors are shunning the proposed merger between Global Crossing Ltd. (GBLX) and US West Inc. (USW).
Shares of Global Crossing, US West and Global Crossing's other merger
partner, Frontier Corp. (FRO), continued to falter Thursday as investors questioned the financial and strategic merits of uniting the three companies.
Global Crossing, a high-flying long-distance upstart based in Bermuda,
said Monday it will merge with US West, of Denver, in a pact valued at more than $35 billion. Global Crossing made an $11.2 billion deal to buy Frontier, of Rochester, N.Y., in March.
Global Crossing's announcements have come as the telecommunications
industry's merger fever is undergoing one of its periodic spikes. Investors in the sector have become accustomed to huge and sometimes startling combinations, such as the deals by AT&T Corp. (T) that will turn it into the nation's biggest cable company. But for many, the link-up between Global Crossing and US West is too much.
"You'd have to pretty much beat your brains out to come up with a deal
that doesn't make sense in this environment. And they've managed that
dubious achievement," said one market source who spoke on condition of
anonymity.
The plan to join US West, a regulated, monopolistic local phone company that serves 14 thinly populated Western and Mountain states, with Global Crossing, which is building fiber optic networks connecting the U.S., South America, Europe and Asia, doesn't make sense to many investors, who also criticize the financial structure of the transaction as overly complicated and full of uncertainties.
To top it off, the US West deal isn't expected to close until late next year and it could meet stiff regulatory resistance between now and then.
"I don't truly see what Global Crossing has to gain with this deal," said Lowell Miller, author of The Single Best Investment and president of Miller/Howard Investments, a Woodstock, N.Y., firm with holdings in both US West and Frontier.
Miller doesn't get the US West side of it, either.
"If I was US West management, I'd be looking for another partner," he
said. "They're sort of selling out to funny money."
Investors generally have far fewer reservations about the deal between
Global Crossing and Frontier, which is primarily a long-distance carrier with an ultra-modern network. But the slide in Global Crossing's shares is undermining investor confidence in the Frontier deal, which is a stock swap.
The many doubts about the plan have hurt all three stocks. Global Crossing has lost about 18% of its market value since the deal was announced. US West shares have lost 12% and Frontier has slid 4%.
Recently, shares of Frontier were down 1 7/16, or 2.6% to 53 9/16 in
moderate trading. US West's NYSE-listed shares were down 1/16, or 0.1%, to 54 13/16 in heavy trading. Global Crossing was down 2 7/8, or 5.4%, to 50 1/2 in heavy Nasdaq trading.
The financial maneuvers that will tie Global Crossing and Frontier to US West are a stumbling block to winning investor support for the deals, even though the combination has strategic value, said Warburg Dillon Read analyst Linda Meltzer.
The benefits, she said, have been difficult for investors to appreciate through the confusion over the proposal to create two tracking stocks and discomfort about the degree to which Global Crossing insiders will benefit from the 9.5% stake US West plans to take right away in Global Crossing.
"I'm not 100% sure the tracking stocks will survive," Meltzer said, adding that they could be either abolished or modified as time goes on.
Many investors have complained that there is no way to tell which shares they will eventually end up holding. In the meantime, their fates are tied to Global Crossing's more volatile and speculatively valued stock. Some investors are also leery of the combined company's management structure, which has been criticized for containing too many chiefs.
"They have a lot of integration challenges, but they've also got very
solid, secure revenue," said Blaik Kirby, a principal at Renaissance
Worldwide, a Boston consulting firm.
The deal's combination of US West's customer and revenue base with the
assets of a network-builder like Global Crossing is not out of line with previous mergers, such as Qwest Communications Group International Inc.'s (QWST) acquisition of LCI International, Meltzer said.
Although US West's home territory is heavily rural, the company has been aggressively staking its future on the development of data services.
"From a strategic viewpoint, US West needed to move with a partner that had a long-haul network," Meltzer said. Within the US West region, the combination of US West and Frontier could be powerful, she said.
Mixing US West's local service with Frontier's long-distance and data
offerings could be problematic, however, since the law bars the Baby Bells that dominate the local phone market from offering long-distance until they have shown that their own markets are open to competition. The companies have said they believe they will be able to overcome regulatory obstacles, but that could involve refraining from combining key US West and Frontier services on US West's home turf, at least temporarily.
Mixing US West with Global Crossing and Frontier will create great
opportunities for the Baby Bell to offer advanced services to customers both within and outside its home region, said Joe Zell, president of enterprise networking, who runs US West's data, Internet and product development operations.
He said the company is "very concerned" about the shareholder response to the deal.
"This is proving to be a much more difficult thing to communicate than we expected," Zell said.
He declined to comment on whether the companies are considering removing or changing some of the structural features of the deal that seem to be troubling investors.
The most immediate benefits in the deal will come from the combination of US West and Frontier, which together would give US West a powerful Internet backbone and Web hosting services, along with long-distance, Zell said. Frontier customers would benefit from US West's advanced data services, he said.
Until the deal closes, US West can buy some services from Frontier as it would from any other supplier. And it can do some types of joint marketing without running afoul of regulators, but it must stop short of directly selling Frontier's services to its customers, as it tried to do with Qwest until the arrangement was shot down.
Outside its home region, US West is poised to become a competitive carrier of data traffic in every state except Alaska and Hawaii, Zell said.
"I can be in service in three to six months," he said.
He said the company's conservative, earnings-oriented investor base, which is averse to dilution, has held it back.
The combined company would be more free to pursue growth, Zell said.
Such initiatives would build on the Frontier network and eventually also take advantage of Global Crossing's planned worldwide reach.
"In the short term, we get a lot of benefit out of Frontier," Zell said. "In the long term, we'll get a lot of benefit out of the global reach."
If US West isn't allowed into long-distance by the time the deal closes, it will face restrictions in its home region, but not outside its territory.
Business customers in US West's territory are looking for carriers who can serve them all over the world, said company spokesman David Beigie.
Beigie noted that US West's stock has returned to the level it where it had been for some time before it shot up last week on takeover rumors.
The complexity of the deal and the long waiting process are likely to
restrain the stock, said Credit Suisse First Boston analyst Frank Governali in a recent report.
The deal, Governali said, "assembles a broad array of assets, but doesn't create a compelling reason to buy US West now."
"The obvious benefit of this transaction is the availablity of US West's cash flow to the growth businesses," he said.
The strategic benefits and savings may take considerable time to
materialize, Governali said, especially since US West has to make its market more competitive in order to satisfy regulators.
The dividend attatched to the combined companies' slower-growing, more
conventional businesses will be attractive, but this unit's long-term
dividend and earnings growth are likely to be slower, though more certain, than they would have been without the merger, since the merger puts the faster-growing assets in the more speculative shares.
Gene Kimmelman of Consumers Union said the advocacy group, based in
Washington, D.C., views the proposed merger as a violation of the
Telecommunications Act because US West has not created a competitive market at home.
He also said it will be important to see that the company's focus on
business and data service does not lead to neglect of its consumer and
residential service, which has a spotty record.
(END) DOW JONES NEWS 05-20-99
07:07 PM |
