BellSouth Still Likes Qwest Stake, Despite Qwest's Stock Slide

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By Leslie Cauley, Staff Reporter of The Wall Street Journal
   BellSouth Corp., which owns a 10% stake in Qwest Communications
International Inc., has so far lost about $1 billion on paper since
Qwest launched a $55 billion hostile bid for U S West Inc. and Frontier
Corp., owing to the sharp slide in Qwest's stock price.
   But don't look for BellSouth to cry uncle.
   Duane Ackerman, chairman of BellSouth, said in an interview yesterday
that BellSouth invested in Qwest because of that company's suite of
long-distance services and products, and its plans for transforming
itself into a global telecommunications powerhouse. Mr. Ackerman
declined to comment on Qwest's proposed U S West-Frontier acquisition,
but offered that "nothing has happened that has changed our relationship
with Qwest."
   Since the audacious plan was announced, Qwest's stock price has
fallen sharply. Qwest yesterday closed at $36, up 25 cents, in Nasdaq
Stock Market trading.
   Still, BellSouth made it clear that it isn't happy about the
financial beating it has been taking. "Nobody likes to watch their
investment go down," said Sidney Boren, BellSouth's executive vice
president of planning, development and administration. "But the
investment we made in Qwest was strategic, not financial."
   Mr. Boren also declined to comment on whether BellSouth thinks
Qwest's hostile bid for U S West and Frontier is a good idea, or to
elaborate on what, if any, acquisition plans BellSouth and Qwest might
be cooking up for the future.
   But people close to BellSouth say the company, given its druthers,
would probably prefer that Qwest not proceed with its planned purchase
of U S West and Frontier. BellSouth executives are said to be concerned
that the transaction could turn into a huge distraction for Qwest's
management, which has indicated it would proceed with takeover plans
regardless of how much resistance it gets from either target. "It
complicates things," said one person close to BellSouth.
   This week, Joseph Nacchio, Qwest's chief executive officer, hit the
road to huddle with some of Qwest's largest investors, aiming to shore
up confidence and re-energize Qwest's sagging stock price.
   In April, BellSouth invested $3.5 billion in Qwest for a 10% stake in
the long-distance upstart, aiming to take advantage of Qwest's
nationwide fiber-optic network once it gets the green light from
regulators to enter the long-distance business. BellSouth and the other
Bells are banned from entering that market in their respective regions
until they have proven to federal regulators that they have opened up
their local phone markets to rivals. Though none of the Bells has yet to
meet that tough test, BellSouth thinks it is pretty close, hence its
interest in lining up long-distance partners and assets.
   The U S West-Frontier deal, if it goes through, would dilute
BellSouth's stake to about 3.5%. But Mr. Boren said that's not a concern
because BellSouth has the right to buy enough additional shares to
maintain its stake at 10%, no matter how much dilution occurs as a
result of other deals. But that would require BellSouth to invest more
money.
   Once BellSouth gets federal approval to enter the long-distance
business, Mr. Boren said the company has the option of increasing its
Qwest stake to 20%, and would get a seat on Qwest's board. Mr. Boren
said BellSouth would need approval from Qwest to increase its stake
above 20%, but demurred on the question of whether the two have
discussed such an arrangement.
   Mr. Boren noted that BellSouth's Qwest agreement, likewise, doesn't
limit either party from pursuing other deals. Added Mr. Ackerman: "We
are not challenged for things to do."
   Separately, U S West is expected to close on its tender offer for
9.5% of the shares of Global Crossing Ltd. at $62.75 a share, which will
cost U S West about $2.45 billion. The tender offer is part of a complex
deal between U S West and Global Crossing. Some have questioned whether
it was a move to allow insiders such as Co-Chairman Gary Winnick to sell
some of their shares. Top executives of Global Crossing have limited
their sales to about 5% of the shares outstanding, while directors will
sell about 8% of their shares outstanding. That is because executives
have decided to sell no more than 30% of the shares eligible for sale.
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