Telecom free-for-all: Qwest wants to buy US West, Frontier

Qwest up against Global Crossing; bid comes days after BellSouth begins its own move on Qwest.

By CLARE HANEY
IDG News Service, 06/14/99

Qwest yesterday announced a bid to acquire US West and Frontier for a total of $55 billion in cash and equity. The deal would create a combined global communications company valued at $87 billion, Qwest said in a statement.

This announcement pits Qwest against Bermuda-based long-distance company Global Crossing, which is already in the process of acquiring both US West and Frontier.

Last month, Global Crossing made a $35.5 billion bid for US West, and then raised its earlier offer for Frontier from $11.2 billion to $12.5 billion.

Qwest said that its bid is both financially and strategically a better fit than Global Crossing's pending arrangement ... the shareholders will get a higher premium for their shares and the integration of the trio is more likely to be a successful match.

Qwest successfully handled a sizable purchase last year when it acquired LCI Communications for $4.4 billion. The deal made Qwest the fourth-largest U.S. long-distance carrier. Qwest also said that its proposed three-way deal will result in total operating synergies of around $14 billion through 2005, including operating cost savings of between $6.7 billion and $7.1 billion.

Qwest's Chairman and CEO Joseph Nacchio sent letters explaining his company's bids to US West Chairman, President and CEO Solomon Trujillo and to Frontier CEO Joseph Clayton. In his letters, Nacchio said he is seeking meetings as soon as possible with Trujillo and Clayton. US West and Frontier have acknowledged receipt of the letters, but have not made any further comment.

Purchasing US West and Frontier would enable Qwest to move ahead in offering Internet communications and broadband services to a combined customer base of 31 million U.S. users and businesses, Qwest said.

Qwest would get Frontier's eleven GlobalCenters for Web hosting and data center business. From US West, Qwest would obtain access to the carrier's 35,000 broadband local digital subscriber lines and 220,000 personal communications services subscribers, as well as US West's !nterprise data networking business with 200,000 Internet-access customers. The combined Qwest, US West and Frontier entity would have its headquarters in Denver, employing around 71,000 staff, Qwest said.

Although the two bids are not dependent on each other, shareholders stand to be better off if both deals go ahead. The bid for US West translates to 1.738 shares of Qwest common stock for each share of US West common stock. If Frontier also agrees to Qwest's proposal, the bid for US West increases to 1.783 shares of Qwest common stock for each share of US West common stock.

The Qwest deal with Frontier will be $20 in cash and 1.181 shares of Qwest common stock for each share of Frontier common stock. Should US West approve Qwest's offer, Frontier shareholders will obtain 1.226 shares of Qwest common stock for each of their Frontier shares.

If the US West bid is successful, Qwest will offer US West's Trujillo the role of Qwest vice chairman and invite both him and three other US West directors to become Qwest directors. If the bid for Frontier goes ahead, Qwest is likely to ask Frontier's Clayton and one other Frontier director to become Qwest directors.

Qwest said it hopes to close the Frontier deal by December this year and the US West deal by the middle of next year, subject to both regulatory and shareholder approval.

Reports that Qwest considered joining forces with Deutsche Telekom to buy US West were not commented on. There was speculation that Qwest and BellSouth might merge after a filing with the U.S. Securities and Exchange Commission revealed that the pair had discussed the possibility. However, analysts last week ruled such a move unlikely.

Qwest will hold a teleconference to discuss its bids for US West and Frontier.