West and Global Crossing to merge


$37 billion deal to forge mighty rival for AT&T, MCI

May 18, 1999|By BLOOMBERG NEWS

NEW YORK -- Global Crossing Ltd., a 2-year-old company that is building an undersea global phone network, and U S West Inc. said yesterday that they will merge in a $37 billion deal to rival the largest U.S. phone companies.

The new company will have two stocks, one to track its long-distance and Internet units and another for a local phone business.

Each share of U S West will be exchanged for 1.2 shares of either of the new stocks, valuing U S West at $72.30 a share, a 16 percent premium. Each Global Crossing share will be swapped for a share of either of the new stocks.

Global Crossing Chief Executive Officer Robert Annunziata is seeking the assets his upstart company needs to take on AT&T Corp. and MCI WorldCom Inc., marrying U S West's local phone service in 14 Western states with long-distance and international networks. But U S West shares fell 6.4 percent amid concern that regulators may object to joining the company with a long-distance provider and questions on the complex merger.

"It's a long, slow, ugly regulatory process," said Anna-Maria Kovacs, a Janney Montgomery Scott Inc. analyst in Boston. "This is not going to be a quick and easy deal."

The companies' negotiations were complicated by an overture from long-distance carrier Qwest Communications International Inc. to combine with U S West, an advance that was rejected, said people familiar with the companies. Qwest indicated that it may come back with a formal offer later, they said.

Qwest and U S West declined to comment on any possible discussions. If U S West or Global Crossing backs out of the merger agreement, there is a $600 million breakup fee. U S West would have to pay another $250 million for services Global Crossing has provided if it initiates the breakup.

Shares of Denver-based U S West fell $4, to $58.25, while Hamilton, Bermuda-based Global Crossing dropped $1.125, to $60.25.

The agreement would combine U S West's local networks and 25 million customers, Global Crossing's undersea fiber-optic cables and a nationwide long-distance network that Global Crossing will get from its purchase of Frontier Corp. The new company will have annual revenue of $17 billion and a market value of about $75 billion.

The problem is that U S West cannot provide long-distance services in its 14 Western and Midwestern states, including Arizona and Colorado. That may mean the combined company will have to shed long-distance customers in order to win approval for the merger from the U.S. Federal Communications Commission, analysts said.

Annunziata and U S West CEO Solomon Trujillo will be co-chief executives.

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