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U S West, Qwest stocks dip
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March 10, 2000: 6:40 p.m. ET
FCC approves merger, but shares sink as Deutsche Telekom pulls out of talks
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NEW YORK (CNNfn) - Shares of the restive merger partners Qwest Communications International Inc. and U S West Inc. fell sharply Friday, despite a key regulatory approval for their deal, after Deutsche Telekom AG pulled out of buyout talks with the two Denver-based telecom companies.
Denver-based U S West (USW: Research, Estimates), whose stock is among the most widely held in the United States, closed down 5-1/2 to 70-1/4 on the New York Stock Exchange. Qwest (Q: Research, Estimates) fell 7-1/8, or 12 percent, to 52-7/8, falling as low as 49-11/16 at one point during the day.
The market plunge came even as Qwest and U S West got word that the Federal Communications Commission had conditionally approved their merger. The merger, which is expected to close this summer, still awaits approval of various state governments in the northwest of the country, where U S West is the dominant regional telecom company.
U S West, one of the so-called Baby Bells, has not won FCC approval to offer long-distance in its 14-state region. The FCC approval is conditional on Qwest selling - as Qwest said it would when it announced the $36 billion purchase last year - its long-distance assets in that region.
Telekom retreat hits Qwest, U S West
But taking a bite out of the stock prices was an announcement late Thursday from Qwest that a "major telecommunications company" pulled out of buyout talks with Qwest and U S West, due to what Qwest called U S West's alleged unwillingness to consider another merger deal. A source told CNNfn.com that would-be bidder had been Deutsche Telekom, which has repeatedly declined to comment on the situation.
In the latest sign of tenuous relations between Qwest and U S West, Joseph Nacchio, Qwest's chairman and chief executive, said, "We regret that U S West apparently wouldn't even consider an alternative transaction involving a major telecommunications company and Qwest, despite the possibility of greater value for U S West shareholders."
Earlier Thursday, however, U S West said it would be open to talks with another bidder -- but set conditions of completion of the Qwest deal and a premium for U S West shareholders equal to or higher than what the Qwest deal calls for.
Nacchio faulted that statement for the bidder's decision to pull out.
People close to the discussions said U S West's Chairman and Chief Executive Solomon Trujillo was concerned about the potentially long time frame required to close a deal with an overseas company, and the possible hang-ups among state regulators that a German company could be running local phone service in their states.
Deutsche Telekom declined to comment on the statements. A report Thursday said Telekom had offered a total of $100 billion in separate bids for the two companies.
Back to Plan A for Telekom?
The collapse of the talks with the two Denver-based telecoms leaves Deutsche Telekom with yet another failed effort to make a much-needed alliance as it tries to bolster its business outside Germany, especially in North America. Last year, the company lost out its effort to buy Telecom Italia to Italy's Olivetti.
Intermittently, Deutsche Telekom has been linked to talks with companies such as BellSouth Corp., Britain's Cable & Wireless, Spain's Telefonica and France's Bouygues Telecom. Global Crossing Ltd. has confirmed it has held talks with Deutsche Telekom.
Collapse of the talks revived speculation that buyout-hungry Deutsche Telekom would seek a merger with Bermuda-based Global Crossing, an operator of undersea cable and an fast-growing communications services provider. Shares of Global Crossing (GBLX: Research, Estimates) rallied 2-13/16 to 58.
In Friday afternoon trading in Frankfurt, shares of Deutsche Telekom climbed 3.3 percent, to 97.10 euros, while on Wall Street, Telekom's (DT: Research, Estimates) American depositary receipts rallied 2-3/8 to 95-7/16.
Deutsche Telekom and Qwest, which also have sporadically talked of a deal over the past months, revived those talks last week, with the backing of Philip Anschutz, Qwest's biggest shareholder. However, U S West, which was left out of the early talks, threatened a lawsuit if Qwest tried to back out of their agreed merger.
Sources close to the talks said that threat - which could have ended in damages payments of billions of dollars from Qwest to U S West - startled Qwest and Deutsche Telekom, which then brought U S West into the negotiations.
The saga, with speculation about Deutsche Telekom's bid never officially confirmed, has led to big swings in the stock prices of U S West and Qwest.
According to the terms of the U S West-Qwest merger, U S West shareholders will receive 1.73 shares of the combined company. However, Deutsche Telekom's reported bid at $100 billion would have reduced the influence of U S West shareholders in the enlarged company.
The Wall Street Journal reported Thursday the Telekom offer would value Qwest, the No. 4 long-distance company in the United States, as much as 50 percent above its current stock price. U S West shareholders would receive about $90 a share, about the same terms as in its Qwest merger deal disclosed last summer.
Under those terms, the offer would value Qwest at about $60 billion, and U S West, the smallest of the regional Bell operators, would be valued at more than $40 billion. Shares of the U.S. telecom companies, which have been swinging widely in recent days on talk of a Deutsche Telekom offer, rose Thursday after the report. 
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