Posted: 08/1999

Qwest, Global Crossing in Battle of Wits,
Wallets Over Frontier, US WEST
By Liz Montalbano

As if summer wasn’t hot enough, Denver-based Qwest Communications International Inc.
heated up the mergers and acquisitions (M&A) pool by challenging Hamilton,
Bermuda-based Global Crossing Ltd.’s proposed mergers with Denver-based US WEST Inc. and
Rochester, N.Y.-based Frontier Corp. with a bid of its own.

On June 14, Qwest proposed a two-transaction deal for a total of $55 billion in cash
and equity and $11.4 billion in assumed debt for the two companies. This was a direct
countermove to two announcements by Global Crossing–the former in March, the latter in
May–that it would acquire Frontier in an $11.2 billion deal and merge with US WEST in a
stock-swap deal valued at $37 billion.

"It’s like McDonalds letting Burger King scope out the best locations, then
outbidding them at the last minute," says Jeffery Kagan, an Atlanta-based telecom
industry analyst, of Qwest’s proposed deal.

Kagan speculates that the feud between Qwest and Global Crossing may be more a battle
of wits than of wallets, since both Qwest CEO Joseph P. Nacchio and Global Crossing CEO
Bob Annunziata are well-heeled AT&T Corp. veterans.

"The Nacchio/Annunziata battle will be fought on two levels–at the corporate
level and at the ego level," Kagan says. "Their new companies need the revenues,
customers and traffic, and they have staked their reputations, so it’s personal."

Jonathan B. Haller, director, Internet and network services analysis for Sterling,
Va.-based Current Analysis Inc., sees Qwest’s play as defensive. He can understand why
Qwest would be "spooked" by "Global Crossing’s potential to make a
local/national/international play with US WEST, Frontier and its [own] global terrestrial
and undersea networks." He even can rationalize why Qwest would want Frontier, since
it "would augment their network and give them more sales channels."

What he can’t fathom, however, is why any company would want to sink its teeth into US
WEST.

"Funny that they’re fighting over such a dirty, bargain-basement rag as US
WEST," he says bluntly. "US WEST has a vulnerable local position. It has no
wireless market share, no international holdings, a very small data-services division, a
reputation for poor customer service and a monopolistic and bureaucratic culture. If
that’s not enough, it also has a predominance of rural holdings."

Investors also were less than thrilled at what they saw as a rash proposal, and Qwest
stock dropped 25 percent after the announcement of its bid.

Hot on the heels of that bad news, Frontier’s Clayton released a press statement June
18 announcing, "The current circumstances surrounding the Qwest proposal do not
warrant any change at this time in our current initiatives that are designed to move
Frontier’s transaction with Global Crossing toward a prompt closing." US WEST, too,
seemed as if it would decline Qwest’s offer, choosing not to act in light of the
acquisition bid.

Sensing it was losing the battle, on June 23 Qwest upped the ante by sending both
Frontier and US WEST a revised, unsolicited acquisition offer. Neither has since
responded–although Global Crossing granted a waiver July 1 to allow US WEST to enter
discussion with Qwest concerning the new bid. Since Global Crossing reaffirmed its
commitment to a Frontier merger in a press statement the day before that, industry rumors
that the companies will split the spoils–Qwest taking US WEST, Global Crossing snagging
Frontier–may prove true.

No matter how the fight ends, Kagan assures it won’t be the last between Qwest and
Global Crossing.

"Mark my words," he says. "This will be the first of many
Nacchio/Annunziata battles over the next few months and years."