Another telecom bidding war got underway yesterday: Qwest Communications International Inc. announced offers for US West Inc. and Frontier Corp. that it hopes will undo deals in which the two companies would be acquired by Global Crossing Inc.
Denver-based Qwest yesterday sent letters to the chief executives of US West of Denver and Frontier of Rochester, N.Y., offering separate transactions that Qwest valued at up to $55 billion in cash and stock and $11.4 billion in assumed debt. The three companies would be based in Denver and would be worth about $87 billion.
The fight for the companies comes just a month after AT&T Corp. won a bid against Comcast Corp. to acquire Media One Group Inc., a large cable television company.
Under Qwest's proposed deal, US West and Frontier would get a better price if they were bought together as a package, but either purchase could go forward separately, Qwest chief executive Joseph P. Nacchio said in letters to the companies.
"We've had a long relationship, a good relationship, with both Frontier and US West," he said yesterday in an interview. "When we saw that those companies were willing to join with other companies, we did our homework and realized that we could step up and perhaps find ways to combine them with Qwest."
Each US West share would be exchanged for 1.783 shares of Qwest common stock if Frontier also agreed to be acquired. This valuation of $80 a share was based on Friday's stock price and would represent a premium of about 46 percent, compared with US West's closing price of $54.87 1/2 a share Friday. Qwest valued the offer at about 25 percent more than what shareholders would get under Global Crossing's deal, based on Friday's closing.
Each Frontier share would be exchanged for $20 in cash and 1.226 shares of Qwest common stock, assuming that US West also agrees to the buyout. This valuation of $75 a share would be about 35 percent higher than Frontier's close price of $55.43 3/4 a share Frida. By Qwest's calculations, the proposed deal is worth 19 percent more that the deal offered by Global Crossing.
The offer to shareholders at both companies would be decreased by several percent if the other company did not agree to a buyout.
Two-year-old Global Crossing, which is building a worldwide network of fiber-optic cables, has been a Wall Street darling with a skyrocketing stock price. Its offers to Frontier and US West were based on a strategy of combining its global communications reach with local phone and high-speed data services across the United States.
Nacchio argued that Qwest has achieved much of what Bermuda-based Global Crossing is promising in the future. The difference, he said, is between "who has plans, and who's making it real."
Qwest, the nation's fourth largest long-distance carrier, is on the brink of completing an 18,500-mile national fiber-optic network. It now is building a network in Europe.
Nacchio, who spoke yesterday with the chief executives of both target companies, said the conversations were "friendly," but added, "I don't want to read [in] anything more than that" because the companies can't engage in meaningful dialogue until they have carefully reviewed the proposals and discussed the deal with their boards of directors.
In a "Dear Sol" letter to US West Chairman Solomon D. Trujillo, Nacchio wrote: "The combination of our two companies is truly a powerful opportunity for our respective shareholders, employees and customers. . . . Our proposal is financially superior to your pending transaction with Global Crossing. Not only will your shareholders receive a higher price for their US West shares in a simpler transaction structure, but they will also receive a superior stock reflecting Qwest's premier assets, management's operating record, strong growth prospects and the greater realizable synergies resulting from our combination."
A US West spokesman declined to comment on the proposal.