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Technology Stocks : Qwest Communications (Q) (formerly QWST) -- Ignore unavailable to you. Want to Upgrade?

To: Epics who wrote (4390)	6/24/1999 1:28:00 PM
From: Teddy	Read Replies (1) \| Respond to of 6846

CWA WARNS QWEST SHAREHOLDERS OF IMPACT OF US WEST TAKEOVER BID PR Wire June 23, 1999, 12:22 p.m. PT WASHINGTON, June 23 /PRNewswire/ -- The Communications Workers of America is alerting Qwest shareholders that the company's continuing bid for US West may harm their investment. Following is the text of a letter sent to stockholders: Attention Qwest Shareholders: Urge Qwest to Abandon Pursuit of US West. Call 1-800-899-7780 Stock Price is Dropping Again on News that Qwest has Increased Its Offer Qwest's bid for USW undermines Qwest's growth strategy. * USW has projected earnings growth of 9.4% next year; Qwest's earnings are projected to grow 250%. * USW's projected annual earnings growth is 6.5% over the next 5 years; Qwest's earnings are projected to grow 48.6% annually over the next 5 years. * It is very difficult to see how this fits in with Qwest's purported growth oriented strategy because the merged company will resemble the old USW more so than the old Qwest since USW is the larger company. * Why acquire the least attractive and worst performing Baby Bell? USW has the lowest projected earnings growth for this year and the next five years of all its Baby Bell peers. Accordingly, the market has assigned it the lowest P/E ratio of its peers. Company This Year % Next Year % Next 5 Years P/E Ratio (1999) (2000) Bell South 17.2 11.4 9.9 23.9 SBC 14.6 12.9 11.7 23.1 Ameritech 14.2 10.2 8.4 25.7 GTE 13.3 12.4 10.1 20.2 Bell Atlantic 10.8 11.2 9.3 20.1 US West 8.7 9.4 6.5 17.4 Source: Zacks Investment Research, Yahoo.com, June 22, 1999. USW is a poor partner for Qwest * The projected synergies suggest that Qwest will not pursue the current growth initiatives underway at USW. In fact, the forecasted hard synergies, ie. cuts in expenses and capital expenditures suggest that, once in the drivers seat, Qwest will not invest sufficient capital in those ventures. This is one of the principal reasons the USW Board of Directors rejected the Qwest bid. * Qwest's plan to eliminate redundancies and bear down on USW's operations will exacerbate an existing problem: USW is already operating at minimal staffing levels having undergone several rounds of downsizing. Any further cuts may not be operationally feasible. USW suffered a strike by the Communications Workers of America around staffing level and workload issues. No other Baby Bell has suffered from such labor strife. A poor service quality record is further evidence of under- staffing and other related problems at USW. Over the past 3 years, USW has been fined millions in several states for substandard service quality. No other Bell company has anywhere near the same magnitude of service quality problems. * The forecasted revenue synergies are not impressive. Qwest predicts that its will have $3 billion in increased revenues as a result of the merger. In contrast, Global Crossing is forecasting increased revenues of $36 billion. The ability to cross-sell products, bring new traffic onto Qwest's existing network is what is needed to achieve these so- called soft synergies -- but Qwest's bid is based primarily on cost cutting at USW operations. A merger with US WEST will hurt Qwest financially: * 97% of the total amount paid by Qwest for US WEST will have to be recorded as goodwill and intangibles which will reduce reported earnings by $1.0-1.5 billion annually in future years. * USW's book value is approximately $925 million. USW has virtually no stockholder equity. USW's total assets is $18.7 billion, whereas its stockholder equity is only $900 million (as of March, 31, 1999). Qwest's present offer for USW is worth $34.7 billion. Under purchase accounting treatment, the difference between the purchase price and book value must be recorded as goodwill and intangibles on Qwest's balance sheet. Therefore $33.7 billion (or 97% of the total purchase price) will be recorded as goodwill which may reduce reported earnings between $1-$1.5 billion annually in future years, depending on how it is amortized. * Qwest has already undergone a sharp P/E adjustment in the wake of its merger announcement. Further stock adjustment is expected as the company gets simultaneously (1) valued like a Bell operating company and (2) have reduced reported earnings from the amortization of goodwill. * USW has a large amount of debt on its balance sheet. This is one reason that USW has virtually no shareholder equity. USW has approximately $10 billion in debt. Qwest will be straddled with this debt after its acquisition of USW which will increase its debt service load; its debt to equity ratio will increase and Qwest's ability to raise capital a low rates may be diminished. SOURCE Communications Workers of America -0- 06/23/99 /CONTACT: Suman Ray of Communications Workers of America Research Dept., 202-434-1185/