After resisting advances from interloper Qwest Communications International Inc. for weeks, Frontier Corp. announced yesterday that it is ready to talk with Qwest about its merger offer--discussions that could break up Frontier's planned merger with its earlier suitor, Global Crossing Ltd.
Qwest has been trying to upset plans by which Global Crossing would buy Frontier and regional Bell company US West Inc. It made a counteroffer to both target companies, which they declined to act on. Qwest came back to the table last week with a stronger offer that brought its price for both Frontier and US West to $54.3 billion, and which addressed some of the issues raised by Frontier in its rejection of the initial Qwest bid.
In a statement released yesterday, Frontier said that Qwest's latest proposal "could reasonably be expected to constitute a superior proposal." The company stated, however, that "the merger agreement between Frontier and Global Crossing remains in full force and effect. . . . This decision in no way reflects a change in the Frontier board's current approval and recommendation of the Global Crossing merger agreement," Frontier said.
Wasting no time, Qwest chief executive Joseph P. Nacchio spoke with top management at Frontier yesterday to set the talks in motion. "We expect to begin discussions immediately--hopefully between now and the end of the week," said Qwest spokesman Tyler Gronbach.
In a statement, Nacchio said: "We are pleased to meet with Frontier's board and management and to work in a professional and constructive manner toward achieving a business combination that is strategically driven and serves the best interests of the shareholders, customers and employees of both companies. We are confident that after the review process, Frontier's board will recognize the clear financial and strategic superiority of Qwest's offer over Global Crossing's." Nacchio also noted that his company is open to negotiations with US West.
For its part, Global Crossing expects to consummate its original deal. "Global Crossing is confident that our existing agreement [with Frontier] is superior to Qwest's revised offer, based on strategic, financial, regulatory and timing considerations," the company said. "We are also confident that once the Frontier board completes its exploratory process, it will reaffirm our existing agreement." Global Crossing said it was "continuing to take all appropriate steps with Frontier to proceed with our existing transaction."
Frontier's bargaining position was weakened earlier this week when it announced that its second-quarter earnings would fall short of expectations, coming in at 20 to 22 cents per share, instead of the 28 cents analysts had expected. In making the disappointing announcement, Frontier hinted that it was considering the revised Qwest offer; Qwest responded by saying that it would not further revise its bid for Frontier in light of the earnings news.
Yesterday's news boosted Frontier's stock price by 50 cents, bringing the shares to 58.62 1/2. Qwest stock rose 18 3/4 cents to close at $33.06 1/2, while Global Crossing ended the day up 12 1/2 cents at $42.62 1/2; US West shares moved up 68 3/4 cents, closing at $58.75.