US West Rejects Takeover Offer From Qwest
US West Inc., which provides local phone services in 14 Western states, rejected Qwest Communications International Inc.’s $38.6-billion takeover offer, saying it won’t break its $36.9-billion agreement to merge with Global Crossing Ltd.
The company said it reviewed Qwest’s offer and decided to take no action now. Its board said it will continue to monitor the situation. Qwest wasn’t immediately available for comment.
Qwest shares have fallen about 18% since it bid for US West and Frontier Corp. a week ago, erasing almost all of the premium it offered to counter the Global Crossing bid. Frontier and US West have said they will wait to see if the stock recovers.
“The real focus has to be what Qwest is going to do to get the stock up,” said Tom Burnett, president of Merger Insight. “They’re going to have to stuff this offer with cash.”
According to US West’s pact with Global Crossing, US West can’t start discussions with another suitor unless its board determines that the bid is superior.
“At this time, the board continues to believe its strategic merger with Global Crossing announced May 17 provides significant value to US West’s shareholders and will ensure that the strategic vision of US West will be implemented,” the company said in a statement.
Global Crossing’s agreement values US West at $36.9 billion, or $62.11 a share, compared with Qwest’s offer of about $65.30. Qwest, the No. 4 long-distance company, originally offered as much as $61.2 billion for both US West and No. 5 long-distance carrier Frontier.
The announcement was made after markets closed. US West shares rose 31 cents to $58.31 on the New York Stock Exchange, while on Nasdaq Global Crossing fell $2.44 to $47.31 and Qwest sank $1.31 to $36.63.
Qwest has already lined up $4 billion in loans from bankers Donaldson, Lufkin & Jenrette Securities Corp. and Bank of America Corp. The company also has about $2 billion in cash on hand from BellSouth Corp., which last month bought 10% of the company for $3.5 billion, Chief Executive Joseph Nacchio said Monday.
“They can add cash in there any time they want. That’s why they’ve been raising all this money,” Burnett said. “It will take the pressure off the stock.”
Nacchio held meetings Monday with analysts and institutional investors in New York as part of an effort to rally support for his plan.
Qwest said it has no plans to increase its offers for the two phone companies. Nacchio sent letters to affirm his bids to the top executives of Denver-based US West and Frontier, of Rochester, N.Y.
