Ending weeks of suspense, regional Bell company US West Inc. announced yesterday that it will merge with long-distance giant Qwest Communications International Inc.
The $48 billion deal ends US West's prior plans to merge with Global Crossing Ltd., an upstart telecommunications company that is building its own international network of undersea fiber-optic lines.
However, a parallel effort by Qwest to grab another acquisition target from Global Crossing, Frontier Corp., failed. Under a complex agreement announced yesterday, Qwest withdrew its offer for long-distance carrier Frontier, which will proceed with a buyout by Global Crossing.
Qwest and Global Crossing had been locked in a bidding war for the two target companies since June 13, when Qwest announced unsolicited offers for them. Today's deal closes that competition, wrapping up the latest in a series of jumbo mergers that is reshaping that U.S. telecommunications industry. The deals still are subject to regulatory approval.
Both US West and Qwest are based in Denver, so the merged entity could reap savings through elimination of duplicative jobs, executives said, though the number would be small. The merged company would have a market value of about $65 billion and combine the base of millions of local US West customers in 14 states with the growing fiber-optic long-distance services offered by Qwest.
"We believe this transaction positions Qwest to be the benchmark large-cap growth company in the new millennium," Qwest chief executive Joseph Nacchio said yesterday in a conference call.
Nacchio first offered $60 a share for US West and later sweetened the offer to $69 a share, with a "price collar" guaranteeing the value of the deal even if the price of Qwest shares dropped. This move budged the initially reluctant US West to come to the bargaining table and abandon its deal with Global Crossing.
Under terms of the deal reached yesterday, shareholders would collect about $36 billion. Qwest also would be assuming about $12 billion in US West debt.
Under the terms of the new merger, Nacchio would continue as chief executive. "You've got to have one person in charge . . . and that is Joe," US West chief executive Solomon Trujillo said yesterday. Trujillo will be a co-chairman of the new company.
Bermuda-based Global Crossing, which wants a U.S.-based long-distance company to complement its international network, will go ahead with its $63-per-share merger with Frontier. It also was to collect about $420 million in "break-up" fees for giving up US West. That sum was to have been $850 million, but Global Crossing agreed to a reduction, apparently to avoid litigation and win an agreement from Qwest not to increase its bid for Frontier, of Rochester, N.Y.
An executive familiar with the negotiations said that the final deal was negotiated directly by Qwest's principal shareholder, Philip Anschutz, and the founder of Global Crossing, Gary Winnick.