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Qwest pushes US West bid
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June 22, 1999: 3:38 p.m. ET
Telecom company urges second look; also files to proceed with takeover bid
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NEW YORK (CNNfn) - Long distance carrier Qwest Communications International urged US West Inc. to reconsider its unsolicited $33.6 billion merger offer Tuesday amid reports the company could initiate a hostile bid for the Baby Bell if it is spurned again.
In an open letter to US West's chairman delivered early Tuesday, Qwest Chief Executive Officer Joseph P. Nacchio pressed the US West board to take "the actions necessary to enter into discussions with Qwest regarding its offer."
The letter followed U.S. West's (USW) decision late Monday to reject Qwest's proposed acquisition bid, which company officials said contained no financial or strategic incentives beyond US West's planned $30.7 billion merger with telecommunications company Global Crossing Ltd. (GBLX).
The rejection also followed a similar decision by Frontier Corp. (FRO) to take no action on a bid by Denver-based Qwest and to proceed with a previously announced merger arrangement with Global Crossing.
But in conjunction with its letter, Qwest -- the nation's fourth largest phone company -- also proceeded to file documents with the U.S. Securities and Exchange Commission to register the stock it would need to complete a merger with either US West or Frontier, a move analysts said could lay the groundwork for a hostile takeover attempt.
Qwest spokesman Tyler Gronbach said his company has made "no decisions" about what alternatives it might pursue, but said the company is keeping its options open.
However, at the moment, US West's board is showing no inclination to wilt under the pressure of a possible hostile takeover.
"They already made a hostile bid once and our board reviewed it and rejected it," said David Banks, a US West spokesman, adding there is plan currently among US West board members to reconsider Qwest's offer in light of Nacchio's letter.
Investors dampening Qwest's case
US West board members said a primary reason for declining to consider Qwest's offer was the company's dwindling stock price, which has fallen sharply since it launched its takeover offer a week ago, diluting the initial premium offered over the Global Crossing bid.
In late afternoon trading Tuesday, Qwest (QWST) was up 1/8 to 36-3/4, still more than 22 percent below its trading level of 44-7/8 when it made its initial bid.
Still, Gronbach said that still represented a "four to seven percent" premium over the Global Crossing offer and deserved consideration.
Analysts had speculated the only way Qwest could eventually force its way back into US West's board room would be by sweetening its offer, something Gronbach said there are no current plans to do.
But some analysts doubted the effectiveness of such a strategy, noting it might increase concerns among investors about the merger's potential impact on corporate earnings.
"The only thing that is going to hurt them now is to raise their bid," said Philip Wohl, a telecommunications analyst with S&P Equity Group in New York. "That would destroy their stock price."
In restating its case for US West, Nacchio said Qwest's offer is still higher than Global Crossing's, Qwest stock is stronger and more liquid, and that Qwest offers "the benefits of a true merger."
"Our offer, with its single class of stock, best serves the shared strategic vision of Qwest and US West to offer our customers a bundle of services ... " Nacchio said. "The tracking stock proposed by Global Crossing does not further this vision."
Still, Wohl questioned Qwest's persistent pursuit of US West, noting despite the company's large geographic reach, it generally dominates rural areas with little strategic value. Wohl said the company's resources might be better spent seeking to expand it alliance with BellSouth (BLS) or seeking a merger with SBC (SBC)/Ameritech (AIT).
US West shares slipped 1-1/16 to 57-1/4 in late trading Tuesday, while Global Crossing inched forward 9/16 to 47-7/8.
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