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CNBC's FABER REPORT: Global Crossing, U S West Said In Talks
The following report was aired Friday on CNBC-TV by CNBC reporter David Faber:
"Global Crossing is deep into talks to purchase Baby Bell U S West for as much as $35
billion in
stock, but it has hit a last-minute snag that could derail any deal.
People close to the talks tell me the two companies had hoped to announce a merger
agreement by
early next week, but talks have cooled for now as Global Crossing deals with its current
acquisition
partner, Frontier Corp. There is no assurance that a deal will take place.
The deal under discussion would not pay a large premium above U S West's current
stock price,
which has moved up by 10% this week on takeover speculation.
The deal under discussion is a complex one, involving the issue of two classes of stock
and the
establishment of co-CEO titles for Global Crossing's Robert Annunziata and U S
West's Solomon
Trujillo.
The plan is a merger of equals that will create a new company equally owned by
shareholders of
Global Crossing, Frontier and U S West. For purposes of the transaction, Global
Crossing will be
the buyer, said people familiar with the deal. Its shareholders will receive one share for
each of their
own in the new company, while paying a bit more than one share of Global Crossing for
each U S
West share. That will make it an even 50/50 ownership split when the new company is
created.
Company officials were either unavailable or declined to comment.
Global Crossing is a company that has seemingly come from nowhere to become larger
in market
value than the Baby Bell it is seeking to merge with. Its $12 billion acquisition of
long-distance
provider Frontier is still pending, and sources tell me that may be the current stumbling
block in any
deal.
While unclear at this time, Frontier may have certain rights to withdraw from its
transaction or block
another deal if Global Crossing pursues an acquisition of more than $2.5 billion. But
while any deal
with U S West would clearly breach that mark, the deal is likely to be characterized as a
merger of
equals and not an acquisition.
Nonetheless, the speculation I'm hearing is that Global Crossing wants to stay on good
terms with
Frontier before doing any deal with U S West. The Frontier deal is expected to close
next fall. Its
value has skyrocketed as Global Crossing's stock price has hit new highs of late.
It is that stock price - and its use - that may have motivated Global Crossing's founding
investor,
Gary Winnick, to pursue a deal with U S West. Winnick, the former Drexel Burnham
partner of
Michael Milken, is said by those who know him to be intent on creating a telecom giant.
While a combination of U S West and Global Crossing appears to raise certain
regulatory concerns
with regard to the long distance rights of a Baby Bell, it would create a company that
would own
wires that connect U S West customers to spots all over the globe. That is when Global
Crossing
completes its plans to build 71,000 miles of fiber and joins the 20,000 miles of cable
laid by Frontier.
U S West has been actively upgrading its lines to a digital system, and together with the
broadband
that Global Crossing controls, the combination is thought by those creating it to be a
rival to the likes
of MCI WorldCom.
The merger plan that was under discussion until the talks hit a snag would have involved
Global
Crossing buying U S West for stock and then splitting the combined company's
operations into
high-growth assets such as long distance, wireless, data transmission and fiber and the
slower growth
local phone properties of U S West and Frontier.
Details of the plan beyond that could not be determined at this time, but is intended to
satisfy Global
Crossing shareholders who might not want the high growth multiple accorded their stock
to be
contaminated by the lower multiple awarded U S West."
Fahnestock's Scott Wright on U S West-Global Crossing: Comment
Bloomberg News
May 14, 1999, 10:48 a.m. PT
New York, May 14 (Bloomberg) -- Fahnestock & Co. Inc.'s
Scott Wright, a telecommunications analyst, comments on the
possible combination of U S West Inc., which provides local phone
service in 14 western and midwestern states, and Hamilton,
Bermuda-based Global Crossing Ltd., which is building an undersea
phone and data network and has agreed to buy No. 5 U.S. long-
distance telephone carrier Frontier Corp. for $12.5 billion in
stock and assumed debt.
Wright rates U S West ''buy.''
''I think it would be a very interesting combination.''
''I like the potential marriage of Frontier's backbone with
U S West's local assets. There are no deal-stopping regulatory
issues. It's a matter of time and money.''
Global Crossing chief executive Robert ''Annunziata rightly
understands that if you don't have an aggressive expansion agenda
right now, you're going to fall behind. While he's got a pending
merger with Frontier, I don't think that adding on a pending
merger with another company is necessarily the wrong thing to
do.''
''This puts a big footprint in the U.S., when you put
Frontier with U S West. U S West is certainly regional, but it
also has some agreements (for) national capacity. But then you
add Frontier with the national assets that they're building --
you've got a company that's much more national than it looks.''
Kagan on Possible U S West-Global Crossing Combination: Comment
Bloomberg News
May 14, 1999, 10:36 a.m. PT
Atlanta, May 14 (Bloomberg) -- Jeffrey Kagan, an independent
telecommunications analyst based in Atlanta, comments on the
proposed combination between Global Crossing Ltd., which is
building a global undersea phone and data network, and U S West
Inc., which provides local phone service in 14 western and
midwestern states.
The companies said today that they are discussing a merger
agreement.
''This was expected and makes sense for both companies.
Global Crossing came out of nowhere in the last few months. It's
one of those new marketplace, new breed of phone companies that
comes out of the marketplace .... that captures the imagination
of the marketplace, that can cobble together a powerful network
and a powerful presence before anyone else.''
The proposed agreement ''gives a lot of fuel to the mergers
that are already on the table.'' It ''may make them easier to get
done. It's very difficult for regulators to ignore the realities
of the marketplace, the realities that say you have to be big to
compete.''
''The wave of consolidation is going to continue because
customers are going to demand more services from their
communications companies and no company can provide all of those
in their present form.''
There will be a ''flood of acquisitions and alliances in the
next few months and years as companies try to remain
competitive.''
It's ''not why U S West and not BellSouth. The question is
when. Timing might have just been right, BellSouth (is) digesting
a deal with Qwest.''
''US West has some pros and cons (for Global Crossing). The
pros are it doesn't have a lot of competition, competitors aren't
beating on their doors to compete in U S West's territories
because they're all rural, they're scattered. The downside is
it's expensive to wire the network'' because the territory is
rural and scattered.
When all of the mergers and acquisitions between phone,
cable and Internet players are done, ''it's going to end up
looking a lot like today's long-distance industry: a handful of
super-carriers and a lot of niche players. There'll be plenty of
them to go around.''
''CEOs of big companies used to worry about CEOs of other
big companies. Now they lay awake at night and worry about CEOs
of startup companies (like Global Crossing) coming along before
they can react.''
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