Firms’ Battle for US West, Frontier Ends in Truce

A weeks-long bidding war involving four major phone companies ended Sunday with US West Inc. agreeing to pair up with Qwest Communications International Inc. and upstart Global Crossing Ltd. moving forward with its purchase of Frontier Corp.--a compromise that would give the rival bidders what they need most.

Denver-based Qwest, a fast-growing nationwide long-distance carrier, said it would pay $36.5 billion, or $69 per share, for Baby Bell company US West, also based in Denver. The purchase would strengthen Qwest by helping to fill its coffers with the local phone company’s steady income, while expanding its reach and customer base.

Global Crossing of Bermuda, an aggressive firm that had planned to buy both US West and Frontier, has agreed to purchase Frontier for $11.8 billion, or $63 per share, in a deal that would combine Global’s undersea and European fiber-optic networks with Frontier’s U.S. network. Rochester, N.Y.-based Frontier sells both long-distance and local phone service as well as Internet hosting services.

In exchange for breaking off its proposed merger with US West, Global Crossing would receive $140 million in cash, the return of $140 million in Global Crossing shares held by US West and about $140 million worth of network services over four years from the combined Qwest-US West.

Global Crossing agreed to buy Frontier on March 17 and to merge with US West two months later. Qwest entered the fray in June and launched surprise bids for both companies. Qwest, the No. 4 U.S. long-distance company, later raised its offers to buy the companies in a second attempt to wrest them away from Global Crossing.

As part of a compromise worked out between rivals Qwest and Global Crossing, Qwest agreed to the payments and dropped its pursuit of Frontier.

“The biggest winners are Global Crossing and the US West shareholders,” said Stuart Conrad, an analyst with Deutsche Banc Alex. Brown. “But everybody comes out of this deal a little bit better off.”

Qwest and US West, a local phone carrier in 14 Western and Midwestern states, would have a combined market value of $65 billion and would have 29 million customers and 64,000 employees. The merged company would be called Qwest and keep its headquarters in Denver.

The companies hope to save $4.3 billion in operating expenses by the year 2005, but executives of the firms stressed that they believe employee layoffs would be “minimal.” The Communications Workers of America, the labor union representing a large portion of US West employees, had previously issued a statement opposing a deal with Qwest, based in part on the expectation of large jobs cuts.

The Qwest-US West merger must pass reviews by the Department of Justice and Federal Communications Commission and be approved by each company’s shareholders. Executives of both firms said they do not believe the deal requires approvals from state regulators. The companies hope to close the merger by mid-2000.

The combined company would be led by Qwest Chairman and Chief Executive Joseph P. Nacchio. Solomon D. Trujillo, currently chairman, CEO and president of US West, would be a co-chairman of Qwest as well as president of the new company’s broadband local and wireless business.

Nacchio and Trujillo, along with Philip F. Anschutz, would form a three-person office of the chairman. Anschutz is Qwest’s current chairman and largest shareholder. There would be a 14-member board of directors, with Qwest and US West representatives occupying seven seats each.

The combined company, strengthened by US West’s steady revenue, would step up its presence in major cities outside the local phone company’s territory, according to Qwest’s Nacchio.

While Qwest already has laid its own fiber-optic lines in most of those large cities, including Los Angeles, Nacchio said the company would move to reduce its reliance on Pacific Bell and other local phone companies to complete the “last mile” connection to business customers.

“We intend to become a provider of that last mile,” Nacchio said. In California, Qwest would step up construction in Los Angeles, Orange County, San Diego, San Francisco, San Jose and Sacramento, he said.

Global Crossing and Frontier, meanwhile, would have combined revenue of $4 billion and 10,000 employees. Robert Annunziata, Global Crossing’s chief executive, said he is pleased with the way things turned out.

“Frontier clearly was our priority,” Annunziata said. Giving up US West, he added, “was worth it because we can close the deal with Frontier faster and there’s less disruption--and a $420-million break-up fee for two months’ work is not bad.”

Next, Global Crossing plans to build on its recent string of acquisitions, Annunziata said. “And if we see something attractive, we’ll try to do some acquisitions.”