Dow Jones Newswires
Qwest Hints Hostile Tender Possible For Frontier,US
West
By SHAWN YOUNG
NEW YORK -- Qwest Communications International Inc. (QWST) suggested it may consider
making a hostile tender offer to shareholders of Frontier Corp. (FRO) and US West Inc. (USW)
as it tries to lure the companies out of merger agreements with Global Crossing Ltd. (GBLX).
"As circumstances change, we may consider adopting different strategies to encourage US West
and Frontier, or their shareholders, to accept our offers, and we may set a deadline," wrote Qwest
Chief Executive and Co-Chairman Joseph P. Nacchio in a letter to Qwest shareholders Monday.
Officials at the companies could not immediately be reached for comment.
Frontier's board is meeting Monday and it is possible the Rochester, N.Y., long-distance company
could issue a statement later. US West, the Denver-based Baby Bell, has not indicated when it
might respond.
Both companies rejected Qwest's first offer, which led Qwest to revise its bid.
Global Crossing has indicated that it has no immediate intention to change its offer as a way to
make sure its deals with Frontier and US West stay intact.
Qwest's offer is valued at about $47 billion. Global Crossing, based in Bermuda, has an offer worth
about $43 billion.
In addition to price, US West and Frontier must consider the structures, business plans, schedules
and regulatory issues related to each proposal.
Qwest has been lobbying hard to convince investors and its would-be partners that its offer is
superior, and it has had some success with investors and analysts.
"It's hard to imagine that the U S West and Frontier boards won't talk to Qwest at this point," said
Janney Montgomery Scott Inc. analyst Anna-Maria Kovacs.
Under the terms of their merger agreements with Global Crossing, Frontier and U S West must
deem Qwest's offer superior in order to hold discussions with Qwest.
Qwest has sent both companies presentations that include a report by equity analysts at Donaldson
Lufkin & Jenrette Securities Corp., one of Qwest's bankers.
The report says Qwest's offer is strategically and financially better than Global Crossing's, no
matter how one does the math. It also says Qwest would not take significantly longer than Global
Crossing to close the deal.
"I like the Qwest offer because it's cleaner, primarily," said Brian Hayward, portfolio manager for
the Invesco Worldwide Communications Fund.
Hayward said he is not a fan of tracking stocks, which are a part of Global Crossing's proposal.
Like many other investors, he said he has reservations about Global Crossing's crowded executive
suite and board room, which have been criticized as unwieldy.
Hayward's fund owns all four stocks involved in the complex bidding war, but he said he trimmed
his positions in Qwest and Global Crossing for the time being.
"We just want to wait and see how this pans out," he said. "Whoever wins, it's going to be a
different company."
Hayward said the possibility that Qwest will make a hostile tender offer does not alter his thinking
as long as the terms don't change.
"I was impressed with their resolve," he said.
CNBC Says Frontier May Warn Of 1999 Earnings Letdown
Meanwhile, a report on CNBC said Frontier may announce that its 1999 operating earnings will fall
short of the $1.19 Wall Street is expecting. In 1998, the company earned $175.8 million, or $1.02
a diluted share, on revenue of $2.59 billion.
Citing unnamed sources, CNBC's David Faber reported earlier Monday that Frontier may blame
delays by Qwest in the network it is building for Frontier. Frontier did not respond to a request for
comment.
Such a statement, if it comes, would be the second along those lines in a year. As it announced
second-quarter earnings last July, Frontier said network-building delays by Qwest would push
some expected savings into 1999 from 1998.
Unless it were catastrophic, an earnings shortfall from Frontier would be very unlikely to dim its
attractiveness to Global Crossing and Qwest, Kovacs said.
Frontier's NYSE-listed shares ended the day down 1 1/2, or 2.5%, to 58 5/16 on volume of 1.8
million, compared with a daily average of 1.4 million. U S West shares, also NYSE-listed, nudged
up 1/16, or 0.1%, to 57 13/16 in light trading.
Global Crossing slid 1 1/4, or 2.7%, to 44 9/16 in light Nasdaq trading; and Qwest gained 7/16, or
1.3%, to 34 5/16 on typical Nasdaq volume.
- Shawn Young; 201-938-5248; shawn.young@cor.dowjones.com
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