Qwest Grabs US West, Misses Frontier

Ending weeks of suspense, Baby Bell telecom US West Inc. announced Sunday it will merge with long-distance giant Qwest Communications International Inc. The $48.5 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.

A parallel effort by Qwest to grab another acquisition target from Global Crossing, Frontier Communications, failed, however. Under a complex agreement announced Sunday, Qwest withdrew its offer for long-distance carrier Frontier, which will proceed with a buy-out 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. Sunday's deal closed that competition, wrapping up the latest in a series of jumbo mergers that is reshaping the American telecommunications industry. The deals are still subject to regulatory approval.

Both US West and Qwest are based in Denver, so the merged entity could reap savings through elimination of duplicated jobs, executives said, though they said 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 chairman Joseph Nacchio told reporters in a conference call Sunday.

Nacchio first offered $60 per share for US West, then sweetened the offer to $69 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.

Shareholders would collect about $35.5 billion under the terms of the deal; Qwest would also assume about $12 billion in US West debt.

Bermuda-based Global Crossing, which badly 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 will collect about $420 million in "break-up" fees for giving up US West.