Qwest Communications International Inc. and Global Crossing Ltd. yesterday announced separate agreements that end a five-week long takeover battle for two U.S. telephone carriers.
Denver, Colorado-based U.S. West Inc. agreed to merge with Qwest in a stock swap valued at US$34.7 billion [B], or $69 per share, the companies said. The combined entity, which will retain Qwest's name, will have a market capitalization of $65 billion [B] and pro forma revenues of $18.5 billion [B] in 2000, Qwest said in a statement issued yesterday.
Cable operator Global Crossing, meanwhile, will proceed with its plan to acquire long-distance provider Frontier Corp., Global Crossing's management and board of directors said in a letter to shareholders dated yesterday. That deal is valued at about $11 billion [B], or $63 per share.
The deals end a battle between Qwest and Global Crossing over the two telephone companies. Bermuda-based Global Crossing was in the process of acquiring both U.S. West and Frontier when Qwest last month announced unsolicited bids to acquire the companies.
In May of this year, Global Crossing made a $35.5 billion [B] bid for U.S. West, and then raised its earlier offer for Frontier to $12.5 billion [B], up from the $11.2 billion [B] it first bid in March.
Qwest said yesterday it has withdrawn its bid for Frontier, while Global Crossing has agreed to reduce a penalty placed on U.S. West for terminating its merger agreement, the companies said. That reduced penalty, including a break-up fee in cash, a return of stock and an agreement to purchase $140 million [M] in services from Global Crossing, totals $420 million [M]. The original penalty would have cost U.S. West $800 million [M].
Qwest said the deal will create a global carrier able to offer both wireline and wireless services as well as broadband and Internet services. The carrier emphasized the importance of U.S. West's position in DSL (digital subscriber line) high-speed Internet services, which it offers in over 40 U.S. cities to 5.5 million [M] households.
Joseph Nacchio, chairman and chief executive officer of Qwest, will retain his position in the merged company, while U.S. West's Chairman, CEO and President Solomon Trujillo will also hold the title of Qwest chairman. Trujillo will also serve as president of the combined company's broadband local and wireless business, Qwest said.
Together with Philip Anschutz, presently chairman of the board of Qwest, Nacchio and Trujillo will work together in operating an Office of the Chairman of the merged company with strategic and budgetary responsibilities, along with approving any purchase or sell-off of businesses.
The 14-member strong board of directors of the merged company will consist of seven members drawn equally from Qwest and from U.S. West.
The merger, subject to the approval of the shareholders of both companies and regulatory bodies, is expected to be completed by the middle of next year, Qwest added. The boards of directors of both Qwest and U.S. West have already approved the merger. Under the terms of the agreement, U.S. West has the right to pull out of the merger if Qwest's share price falls below $22 at close of play of trading for 20 days in a row, prior to the conclusion of the tie-up.
The combined company will employ about 64,000 staff and will have its headquarters in Denver at what was formerly U.S. West's headquarters.
Global Crossing's directors and management said the conclusion of the contest for U.S. West and Frontier is favorable for Global Crossing's shareholders.
The termination of the Bermuda-based company's merger agreement with U.S. West should avoid time delays and "regulatory uncertainties," in merging Global Crossing with Frontier, they said in a letter to Global Crossing shareholders dated yesterday.
Global Crossing's CEO Robert Annunziata reportedly told the Wall Street Journal yesterday that his company realized that trying to match Qwest's bid for U.S. West would be counterproductive. "The word I got was that they (Qwest) were going to keep doing this at any price," he reportedly told the Journal. "We were not willing to be the any-price company."
For its part, Qwest has pointed to its successful integration of an earlier purchase as proof that it will be able to handle a merger with U.S. West. In March of last year, Qwest became the fourth-largest U.S. long-distance carrier when it bought LCI Communications Inc. for $4.4 billion.