NEW YORK (AP) -- Wall Street is closely watching US WEST Inc., the focus of two competing buyout offers, now that another telecommunications company involved in the takeover bids has made its decision.
US WEST, a Colorado-based Baby Bell telephone company, is weighing a $34 billion offer from Qwest Communications International Inc. against a $32.5 billion bid from Global Crossing Ltd.US WEST and Frontier Corp., a Rochester, N.Y., long-distance phone company, had previously agreed to merge with Global Crossing Ltd. before receiving tandem bids from Qwest on Sunday.
Frontier said Thursday it is sticking to its deal with Global Crossing, which is headquartered in Hamilton, Bermuda. Now US WEST must decide.
Billions of dollars hang in the balance of this bidding war as each of the companies place their bets on the winners and losers of the Internet revolution.
The telecommunications industry is changing dramatically in attempt to serve residential and business customers who want to send and receive music, e-mail, television programming, movies and data. Both Qwest and Global Crossing are building global fiber optic cable networks to provide these services.
Joining forces with Qwest makes more sense, some US WEST investors said Friday, because Qwest has a longer track record. Qwest and US WEST are also both based in Denver and have a long-standing relationship.
"There's a little bit more infrastructure and business planning in Qwest," said Catherine Zaharis, a portfolio manager for Invista Capital who owns about 1 million shares of US WEST in her funds. "The merger might make more sense ... with Qwest than with Global Crossing."
Arguments for US WEST siding with Global Crossing are also powerful.
Global Crossing struck an agreement to acquire US WEST last month. And although Qwest's offer was originally far superior at $40 billion, it eroded quickly as Qwest's stock price tumbled. The value of Global Crossing's bid, which will also be paid in stock, is structured to protect it from all but the most violent swings in the company's stock price.
As part of the agreement between US WEST and Global Crossing, US WEST was expected Friday to complete a $2.45 billion tender offer for about 10 percent of Global Crossing's shares.
If US WEST backs out of the merger agreement, the company will have to pay an $850 million penalty fee to Global Crossing.
US WEST must also consider Frontier's move. The companies were each promised a premium of about $2 a share if they both agreed to go with Qwest. If Frontier goes with Global Crossing, then US WEST shareholders will be paid $65.94 a share instead of $67.64 if they choose Qwest.
"We continue to deliberate whatever is in the best interest of our shareholders and obviously will get that done in due course," said David Banks, a spokesman for US WEST.
If US WEST rejects Qwest, than Qwest may decide to sweeten its bid, or take it directly to shareholders of US WEST for a vote.
Whether US WEST picks Global Crossing or Qwest, the deal will face intense regulatory scrutiny. Baby Bells are prohibited from offering long-distance service until they prove they have opened the local market to competition.
"It's hard for me as a (Qwest) shareholder to be interested in buying US WEST today," said Catherine Jackson, a managing director for Trainer Wortham, which owns more than 500,000 shares of Qwest.
She said Qwest doesn't expect to get regulatory approval to sell long-distance phone service in US WEST's 14 states until Jan. 1, 2002.
"That is something as a shareholder I really don't want to wait around for," she said.
Qwest's stock jumped $1.93 3/4 to $37.93 3/4 Friday on the Nasdaq Stock Market, where Global Crossing's shares rose 93 3/4 cents to $49.75.
US WEST's shares climbed $1.06 1/4 to $58 on the New York Stock Exchange, where Frontier's shares rose 56 1/4 cents to $58.31 1/4.