Qwest Communications International Inc. upped the ante yesterday in the bidding war for "Baby Bell" US West Inc. and long-distance carrier Frontier Corp.
Both companies had already accepted merger offers from international telecommunications newcomer Global Crossing Ltd. when Qwest announced its competing bids, to be paid largely in stock, on June 13. But Qwest stock subsequently tumbled by nearly 25 percent, reflecting shareholder jitters about the plan.
Yesterday's announcement not only raised the price for Qwest's offers but also sweetened the deal with cash to ensure that Qwest would not give up too much stock to acquire the two companies. Under the revised deal, Qwest said it would pay $69 a share in stock for US West and $68 a share in cash and stock for Frontier. Those prices, which are guaranteed against price movements in Qwest shares, are 8 percent higher than the Global Crossing price for Frontier and 11 percent more than the offer for US West. The total value of the offers increases to $54.3 billion from $50.3 billion.
In a conference call with reporters, Qwest Chairman Joseph P. Nacchio said his company had built the kind of network -- with 18,500 route miles in the United States alone -- that Global Crossing has yet to deliver.
"Clearly we believed if you stack up Qwest to Global Crossing, you have to go a country mile to believe that these two companies are the same," Nacchio said.
US West shares rose $1, to $58, on the day's news, while Frontier gained $1.87 1/2, to $59.87 1/2. Global Crossing fell $1.56 1/4, to $45.87 1/2, and Qwest -- the most actively traded stock in U.S. markets -- fell $2.75, to $32.56 1/2.
Despite Wall Street's reaction, some analysts said the new Qwest offer has made it a real player in the fight. Coming up with a fixed-price deal was the "missing ingredient," said Frank Dzubeck, president of consulting firm Communications Network Architects Inc. Qwest has now put together "an extremely attractive offer" that demands the attention of the US West board, Dzubeck said. "If you were a major shareholder and they turned this down at $10 a share difference -- real money! -- what would you think? I'd think it was time to call my lawyers!"
Dzubeck said that either deal would create a telecommunications powerhouse. The international networks under construction by Global Crossing and by Qwest would complement the 14-state local phone services and data networks of US West and the national long-distance network built by Frontier, Dzubeck said; the combination with Qwest would create "a powerful creature" in the U.S. market, while the Global Crossing merger would set up a more potent international player. "It's a tossup," Dzubeck said.
The Qwest offer makes sense, said telecommunications analyst Roger Wery of Renaissance Worldwide. "Combining this big regional fortress [US West] with a nimble and effective network backbone [Qwest] is definitely a formidable combination -- it makes more sense, frankly, than a Global Crossing-US West" merger.
CAPTION: Qwest Chairman Joseph P. Nacchio sweetened the deal with cash.