from Tuesday's NYTimes: Qwest and Global Crossing Fight It Out
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By LAURA M. HOLSON
Three weeks ago, Joseph Nacchio was Wall Street's
version of Rodney Dangerfield: He couldn't get respect.
The chief executive of telecommunications upstart
Qwest Communications International had just begun
not one, but two unsolicited offers for companies that
had recently agreed to merge with rival Global
Crossing. Investors balked, and Nacchio's $55 billion
gamble -- along with Qwest's stock price -- landed
with a thud. As a Wall Street banker remarked at the
time, "This will be a Harvard Business School case
study someday on how not to launch a hostile
takeover."
What a difference a few weeks makes. Over the
weekend, while other Americans grilled burgers in
their back yards, Qwest executives, including Nacchio,
gathered in Denver and New York to begin preliminary
and separate merger discussions with executives from
both Frontier Corp., the fifth-largest long-distance
telephone company, and U S West, the smallest of the
regional Bell companies.
To many bankers and analysts, such talks were
unthinkable; that was until Qwest sweetened its offer
and Global Crossing's stock price began to slide last
week. Frontier and U S West, fearing investor lawsuits
or offending either company, have tiptoed around
picking sides, despite the verbal jousting of their
suitors. It is up to Qwest now to persuade U S West
and Frontier that its offer is better than Global
Crossing's.
"I've never seen anything like this," said one executive
close to the talks. "Everyone is on pins and needles."
That is not surprising, given what is at stake: Both
Qwest and Global Crossing are trying to catapult
themselves into the ranks of the communications elite
that can successfully navigate the perilous
transformation of old-world cable and copper wires
into the new digital universe of the Internet. For the men
who founded these promising upstarts -- and the
executives they have hired to run them -- it is a costly
experiment, one they are betting reputations and
fortunes on. And if recent events are a taste of the deal
politicking to come, the most interesting days are ahead
for all.
Nacchio has assembled his team of bankers, lawyers
and media advisers on the 15th floor of Qwest's
headquarters in downtown Denver, where executives
not dispatched elsewhere gather at a U-shaped table for
morning and afternoon briefings. There, people on
24-hour alert respond to any crisis that could weaken
Qwest's case, including dashing off letters to U S West
executives responding to news accounts that Qwest
believes are misleading. As many as 30 investment
advisers from Donaldson, Lufkin & Jenrette are split
into two groups: one to meet with advisers for U S
West in Denver, the other to meet with Frontier
negotiators in New York.
Because Global Crossing, which is based in Bermuda,
has already signed merger agreements with U S West
and Frontier, there has been little to do. Global
Crossing has a provision which allows it to get a "last
look" at any terms offered by Qwest. But Global
executives are far from passive. Robert Annunziata,
Global's chief executive, plans to take his company's
case directly to investors this week -- much as Qwest
has done -- after the company files documents with
regulators Tuesday regarding its merger with Frontier.
Much has been made of a personal rivalry between
Annunziata and Nacchio. Both are scrappy fighters,
honing their street smarts in the neighborhoods in and
around New York City. Annunziata, a 17-year veteran
of AT&T raised on Long Island, N.Y., founded
Teleport Communications Group, which was the
nation's largest competitive local phone carrier before
it was sold to AT&T last year for $12 billion. Nacchio
is the hypercompetitive, sometimes cocky consumer
products strategist who grew up on Staten Island in
New York City and spent 27 years at AT&T, ascending
to the No. 3 spot.
But people who know both men say that their zeal for U
S West and Frontier is rooted in their personal quests
to build the AT&T for the new millenium, not in any
desire to spar. Annunziata has turned down requests for
interviews, citing regulatory rules which bar him from
speaking.
But Nacchio not only agrees with this notion, he
embraces it. "AT&T was a great company for the 20th
century," Nacchio said. "But Qwest will replace it in
the 21st century."
Being at the vortex of a communications shift is what
the largest investors of both Qwest and Global
Crossing hope they have seized upon, too. One couldn't
have found a more unlikely telecommunications baron
than Gary Winnick, Global Crossing's founder. He has
no industry experience to speak of, having first made
his name as an associate of junk-bond king Michael
Milken in the 1980s.
His track record as a financier is mixed: A furniture
chain and a mattress company he bought in the late
1980s both declared bankruptcy within weeks of each
other in 1991. But Winnick had a winning way with
Global Crossing, turning an initial $15 million
investment into about $5 billion.
His manner is, at times, unorthodox. He routinely
conducts late-night business meetings with top
executives while exercising on his office treadmill.
People who have worked with him say he acts as if he's
still on a trading desk, standing at his desk yelling
orders into the phone. And when asked recently about
how he planned to manage the egos of the many former
chief executives he had on staff, the billionaire said
with a laugh, "I'll give them all 2-by-4s and let them
work it out."
There is much to suggest that he is the one calling the
shots. Annunziata, for one, was hired only in February.
And it was Winnick who personally gave his blessing
to U S West to begin talks with Qwest, said people
close to the talks. It was a deft move; U S West now
can hold talks without alienating Annunziata or putting
U S West's board in the awkward position of declaring
Qwest's bid better.
Philip Anschutz, the reclusive Denver billionaire who
owns 40 percent of Qwest, is a formidable foil to
Winnick. He too is a financier, but made his money in
oil and railroads, in particular, purchasing Southern
Pacific Railroad in the late 1980s for $1.8 billion and
then selling it to Union Pacific in 1996 for $5.4 billion.
Qwest grew out of that investment. He paid Southern
Pacific for the right-of-way to lay fiber-optic cable
along railroad tracks.
Like Winnick, he is driven to find opportunity where
there seems to be none. In 1968, for instance, when an
oil well he was drilling for Chevron Corp. ignited,
Anschutz persuaded Universal Studios to pay him
$100,000 for the rights to film the burning well for an
upcoming movie starring John Wayne. With that money,
according to news reports, he paid firefighters to stop
the fire and saved the well.
Whoever wins U S West and Frontier will come down
to which man wants them most and the price he is
willing to pay. Winnick, said people close to the talks,
insists he will walk away if the price gets too high in a
bidding war. But the question industry analysts are
asking themselves is, 'Walk away to what?' Most agree
that Global Crossing needs Frontier more than Qwest
does.
Any compromise, if one exists, might have to be
worked out personally between Anschutz and Winnick,
Wall Street analysts said. But Robert Gensler, a
telecommunications analyst for T. Rowe Price, may
have heard the most telling comment about what Global
Crossing can expect from Qwest in the coming weeks.
"If I can't win this thing," Gensler said Nacchio told
him recently, "it's going to be painful for others." |
