Frontier Rebuffs Qwest Takeover Bid
Frontier Rebuffs Qwest Takeover Bid
Jun. 29, 1999
NEW YORK (AP) _ Frontier Corp. has again sidelined a takeover offer from Qwest, the upstart telecommunications company that is trying to build a global network for high-speed Internet traffic.
The announcement late Monday may spur Qwest Communications International Inc. to take its $11.4 billion cash and stock bid directly to Frontier's shareholders.
Qwest made offers earlier this month to acquire Frontier, a long-distance and local phone company, and U S West Inc., a Denver-based regional phone company. Qwest sweetened its proposals last week after its first bids were not accepted.
Qwest is trying to break up an agreement the two companies have made to be purchased by rival Global Crossing Ltd. Both Qwest and Global Crossing are building worldwide fiber-optic cable networks to carry radio, TV, e-mail and other data over the Internet.
Frontier's board said it ``is continuing to evaluate the revised proposal by Qwest Communications to acquire Frontier'' but said it still plans to proceed with its merger with Global Crossing.
If Frontier doesn't act soon, Qwest may try to go around the company's management by sending its buyout offer directly to shareholders, asking them to ``tender'' or offer their shares for sale.
Qwest sent letters Monday to about 20 of its largest investors to stress its determination to acquire U S West and Frontier.
``As circumstances change, we may consider adopting different strategies to encourage U S West and Frontier, or their shareowners, to accept our offers, and we may set a deadline by which they must do so,'' wrote Joseph P. Nacchio, Qwest's chairman and chief executive, in the letter.
Brian Hayward, portfolio manager for the Invesco Utilities fund, who received a copy of the letter, said, ``I understand the strategy behind what they (Qwest) are doing.''
But he added, ``hostile tenders are never as good as the acceptance of a friendly offer, so we just have to wait and see.''
Qwest, however, may reconsider its prospects. Frontier also said late Monday that its profits for the second quarter and the year would fall far short of Wall Street's estimates. Frontier, based in Rochester N.Y., blamed its troubles on pricing erosion in the long-distance market.
Monday night, Qwest said it ``will not revise its current proposal to acquire Frontier'' especially in light of its weaker financial state.
Qwest maintained that its offer is ``superior'' to Global Crossing's, adding, ``We would expect ... Frontier's shareowners' best interests would be served by a prompt affirmation to our offer so that we can proceed together.''
Investors will now shift their attention to U S West. The company's board of directors is scheduled to meet later this week to evaluate the new $34.7 billion stock offer from Qwest.
U S West has been facing political pressure from Colorado legislators to consider Qwest's offer because the combined companies would remain based in Denver. The union representing U S West's workers, however, is lobbying against Qwest's proposal out of fear of job cuts.
Qwest has been putting on a full-court press to convince the boards of directors of both companies that its bids are superior to offers from Global Crossing.
Global Crossing offered $10.9 billion in cash and stock for Frontier and about $31 billion in stock for U S West.
Qwest has 18,500 miles of cable in place. Global Crossing, based in Bermuda, is building an undersea network to link the continents.
The entire communications industry is being turned upside down by the Internet and its vast potential for transmission of information, electronic commerce and new forms of entertainment. Companies are trying to secure the technology and customers to compete in a new market.
Qwest made its initial bids for U S West and Frontier on June 13, but its $55 billion stock offer collapsed when investors dumped Qwest shares, sending the stock down 24 percent.
Qwest revamped its offer Wednesday, and locked in the value at $69 a share in stock for U S West and $68 a share in cash and stock for Frontier.
Qwest sent letters and presentations to the boards of U S West and Frontier to alleviate concerns about regulatory snags and growth potential.
``There are no minefields,'' Nacchio wrote in a letter to the head of U S West, Solomon Trujillo.
The combined company would only have to shed 1 percent of its business to comply with legislation aimed at fostering competition, according to Qwest.
Qwest's stock rose 43 3/4 cents to $34.31 1/4 on the Nasdaq Stock Market, where Global Crossing's shares dropped $1.25 to $44.56 1/4.
U S West's shares rose 6 1/4 cents $57.81 1/4 on the New York Stock Exchange, where Frontier's shares fell $1.50 to $58.31 1/4.