2 Firms’ Shares Fall on News of Telecom Merger
Solomon Trujillo and Robert Annunziata have a common vision of uniting a conservative Baby Bell and a risky, undersea cable network. Unfortunately, some of their investors are having trouble seeing it.
Trujillo, chief executive of US West Inc., and Annunziata, chief executive of Global Crossing Ltd., watched shares of both their companies fall Monday after announcing plans to combine their telecommunications companies in a complex, $37-billion stock swap.
“Investors are still trying to sort the deal out,” said Robert Wilkes, a telecom analyst with Brown Bros., Harriman & Co. “And if you don’t understand something, the first impulse is to sell.”
US West, a Baby Bell in 14 Western and Midwestern states, is hooking up with Global Crossing, a Bermuda-based upstart that is building an undersea cable network to wire the continents for high-speed data and voice communications.
Shares of US West fell $4 to $58.25 on the New York Stock Exchange. They stayed down throughout the day, despite a report by financial news TV network CNBC that Qwest Communications International Inc., the No. 4 long-distance company, may try to break up the deal with a counter bid for US West.
Qwest couldn’t be reached.
Shares of Global Crossing, meanwhile, dipped $1.13 to close at $60.25 on the Nasdaq.
Global Crossing, founded by Gary Winnick, a Los Angeles financier, went public in August and has seen its stock increase sixfold since then.
The two-part deal will start with US West spending $2.4 billion to acquire 9.5% of Global Crossing’s shares. When the merger closes, in the second half of 2000, the two companies will each own half of the new company, which will keep the Global Crossing name and be based in New York.
To allay investors’ concerns about risk, the new company will have two tracking stocks. The G-stock will reflect the performance of the high-growth Internet assets, while the L-stock will track the traditional Ma Bell telephone assets and pay a hefty dividend.
US West shareholders will get 1.2 shares in the new company for each share they currently own. They will also receive special dividends ranging from 24 1/2 cents to $1 in each of the quarters leading up to the merger.
Global Crossing shareholders will receive one share in the new company for each share they now own.
