Qwest Offers to Buy US West, Frontier for $55 Billion
Qwest Communications International Inc. on Sunday offered to buy Baby Bell US West Inc. and long-distance provider Frontier Corp. for $55 billion in cash and stock, attempting to break up rival Global Crossing Ltd.’s plans to buy both companies.
In a bid to create a U.S. telecommunications giant, Denver-based Qwest said it would pay as much as $80 per share in its common stock for US West and $20 per share in cash and as much as $55 per share in stock for Frontier.
Qwest said it also would assume about $10 billion in US West debt and $1.4 billion in Frontier debt.
The announcement could crush Global Crossing’s plans to become a telecommunications powerhouse or spark a bidding war between the companies.
“It’s not like either company is unable to up the ante,” said Jeffrey Kagan, an independent telecommunications analyst in Atlanta. “They both use their highflying stock prices as currency to buy other companies.”
Bermuda-based Global Crossing and US West, based in Denver, said in May that they agreed to merge in a stock deal valued at $37 billion. In March, Global Crossing said it would buy Rochester, N.Y.-based Frontier for $11.2 billion.
Global Crossing stock, however, has fallen 16% in recent weeks as the companies have had a hard time selling investors on the benefits of combining their businesses. Qwest’s move could allow Global Crossing to bow out gracefully.
“Given the clear superiority of our offer to the proposed Global Crossing merger, we would like to meet with you and your advisors as soon as possible,” wrote Joseph Nacchio, Qwest chairman and chief executive, in letters to the heads of US West and Frontier.
US West said its board will review the offer “in due course,” said David Banks, a spokesman.
Global Crossing and Frontier executives declined to comment on the situation Sunday.
The Internet is revolutionizing the telecommunications industry and driving a string of merger bids. Companies are hoping that the next generation of high-speed Internet technologies will link more homes and businesses, providing a wealth of new opportunities to sell goods and provide information and entertainment. These hopes have prompted telecom and cable companies to make big bets on mergers so they can gain the size and market share that will be key to profit growth.
Last month, AT&T; Corp. won a bidding war with Comcast for MediaOne Group Inc., a Denver-based cable company. AT&T;, the nation’s largest long-distance company, is gambling that television cables will be the way to carry Internet, voice and data traffic in the future.
Other telecom companies such as Qwest and US West are banking on an alternative high-speed Internet technology that uses traditional telephone lines.
If Qwest is successful in its takeover quest, the combined company would have sales of $22 billion serving 31 million customers. Currently, Qwest has just $4.65 billion in sales and 4 million customers.
Qwest estimates the united company could save as much as $11.1 billion in operating costs and capital investments and generate as much as $3.1 billion in sales as it expands local telephone service as well as data and Internet services. Qwest also would get its foot into the wireless phone business.
It is a heady undertaking, and not without risks. Global Crossing, or another telephone company, could raise the stakes.
“We entered this planning to win,” Nacchio said in an interview. “That will remain unchanged, irrespective of anyone else’s entering it.”
Nacchio also has a partner--BellSouth Corp. The Atlanta-based Baby Bell recently injected $3.5 billion into Qwest in exchange for a 10% ownership stake. BellSouth had even considered buying Qwest, but all Baby Bells are currently prohibited from owning long-distance carriers.
Asked how Qwest’s bid Sunday would affect the company’s relationship with BellSouth, Nacchio said, “In the long term, this should be beneficial to both companies,” he added, “BellSouth was always interested in affiliating themselves with a high-tech, high-growth company, and we remain that.”
Rumors that Qwest was eyeing US West surfaced last month when Global Crossing struck its deal with the Baby Bell. But the whispers grew louder last week, and US West’s stock rose 56 cents to close at $54.88 on the New York Stock Exchange. Qwest’s stock gained $1 to $44.88 on Nasdaq.
The tandem bid for Frontier, however, was unexpected. Frontier’s stock closed down 25 cents Friday to $55.44, also on the Big Board.
