Following more than a month of bidding wars and posturing, the fight over which company will acquire U S West Inc. and Frontier Corp. is over and both suitors can claim victory.
Qwest Communications International Inc., the Denver-based broadband specialist, successfully wooed its Denver neighbor U S West Inc. away from its original bidder, Global Crossing Ltd., and dropped its bid for Frontier Corp. Global Crossing, headquartered in Hamilton, Bermuda, and New York-based Frontier plan to go ahead with the merger agreement they originally forged in March.
Shortly after the new merger arrangements were settled, Frontier announced plans to sell its wireless interests to Bell Atlantic Mobile, which is a 50-50 partner with Frontier in Buffalo, Rochester, Syracuse, Utica/Rome and Binghamton, N.Y., as well as in six rural service areas in New York and Pennsylvania.
The transaction will add 400,000 customers to Bell Atlantic Mobile’s wireless subscriber base. Once Bell Atlantic completes its acquisition of Frontier’s wireless assets, as well as its acquisitions of GTE Corp. and certain wireless properties belonging to Ameritech Corp., the company will have more than 14 million wireless subscribers, making it the largest wireless carrier in the United States in terms of number of subscribers.
“Once the transaction is closed, Upstate New York customers will have access to the largest, contiguous wireless network on the East Coast,” said Dennis Strigl, president and chief executive officer of Bell Atlantic Global Wireless Group.
Frontier President and Chief Operating Officer Rolla Huff added the transaction will allow Frontier’s wireless business to draw on the resources of a leading wireless provider while allowing Frontier to focus on its core data and Internet businesses.
The Frontier transaction is expected to close by the end of the year.
Some analysts had been expecting Frontier to shed its non-core wireless business ever since it agreed to be acquired by Global Crossing earlier this year. The company’s focus will be on fiber, combining Global Crossing’s international fiber network and Frontier’s domestic fiber network.
Global Crossing would have further strengthened its U.S. presence through a tie-up with U S West, but the company elected not to raise its bid to match or beat Qwest’s offer for the company.
“We feel our original offer (for U S West) recognized a full and fair market price,” said Global Crossing’s board of directors in a letter to shareholders. “We do not believe your best interests would be served by increasing our bid by an additional premium of approximately $5 billion in order to match or exceed the competing offer.”
Instead, Global Crossing will receive a revised break up fee totaling $420 million consisting of $140 million in cash from U S West, the return of $140 million in Global Crossing shares issued in the tender offer and an agreement that the combined Qwest/U S West will purchase $140 million of capacity on Global Crossing’s network during the next two years. Qwest advanced U S West the $140 million cash payment it made to terminate its merger agreement with Global Crossing.
The companies originally had agreed to an $850 million break-up fee.
Both U S West and Frontier were set to combine with Global Crossing before Qwest made competing offers for the companies. U S West and Frontier both decided not to act on the competing proposals when Qwest’s stock fell, weakening its offers. Qwest later raised its offers for the companies.
According to their agreement, Qwest will pay U S West shareholders $69 in stock for each share of U S West common stock. The transaction is subject to a collar on Qwest’s average stock price between $28.26 and $39 per share.
Global Crossing plans to acquire Frontier for $62 per share.
