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Qwest's Merger Talks with Deutsche Telekom Spark Speculation and Concerns

Strategic Insights

— 1 min read

Qwest Communications International Inc., a broadband communications company, has confirmed that it is in talks with Deutsche Telekom AG, a major German telecommunications company, about a potential merger. The negotiations have sparked concerns over the fate of Qwest's subsidiary, U S West Inc., and its deal to acquire U S West. Executives close to the negotiations have revealed that Deutsche Telekom's ideal agreement would involve U S West "disappearing" from the equation. However, U S West Chairman Sol Trujillo and general counsel Mark Roellig have strongly rejected this proposal, stating that "disappearing" is not an option for the Denver-based phone company.

Key Takeaways:

  • Qwest and Deutsche Telekom are in talks about a potential merger, with the German company seeking to acquire U S West and merge it with Qwest.
  • Deutsche Telekom's ideal agreement would involve U S West "disappearing" from the equation, which is strongly opposed by U S West management.
  • Tom Friedberg, a telecommunications analyst with Janco Partners, predicts that the terms of any deal will include a share price for U S West that finds a happy medium between its $50-$60 price last July and the $135 or more it would command under the 1.72 exchange ratio.
  • Friedberg believes that U S West has a fiduciary duty to consider an offer of $90-$105 per share, but killing Deutsche Telekom's interest in Qwest could result in Qwest's share price falling to $45.
  • The California analyst describes U S West as a "tar baby" that Qwest can't shake off, highlighting the complexity of the merger negotiations.
  • Friedberg also criticizes Deutsche Telekom CEO Ron Sommer's approach to deal-making, stating that Sommer has blundered in public statements and has vulnerably disclosed the company's acquisition strategy.

Statistics:

  • Share price for U S West last July: $50-$60
  • Potential share price for U S West under the 1.72 exchange ratio: $135 or more
  • Potential share price for Qwest if U S West kills Deutsche Telekom's interest: $45
  • Value of liquidity provided to Global Crossing by U S West's sale of Global Crossing shares: Not specified
  • Current share price of Global Crossing: Not specified
  • Share price of Cable & Wireless (nominated by Deutsche Telekom as an acquisition target): Not specified

Sources:

  • The New York Times
  • Qwest Communications International Inc.
  • Deutsche Telekom AG
  • Janco Partners (Tom Friedberg, telecommunications analyst)

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