Telecommunications upstart Global Crossing is in talks to acquire Baby Bell US West Inc. in a stock deal that could be announced as soon as Monday, according to sources close to the deal.
If completed, the merger would marry Global Crossing's growing international fiber network with the far-flung local and wireless phone and Internet businesses of US West, which serves mostly rural regions in 14 Western and Midwestern states.
The two firms are structuring the deal as a merger of equals, with US West shareholders receiving a slight premium for their shares, the sources said. To satisfy the diverse interests of the two shareholder groups, the merged Global Crossing would be split into two separate trading stocks, they said.
Executives from Hamilton, Bermuda-based Global Crossing, which has management offices in Los Angeles, did not return phone calls Friday. A spokesman for US West, based in Denver, declined to comment on the merger speculation.
Global Crossing, while once a virtual unknown in telecommunications, has sprung to the forefront with a roster of high-profile executives, a string of major acquisitions and a soaring stock price.
In March, the company agreed to buy Frontier Corp., the nation's fourth-largest long-distance company, in a stock deal worth an estimated $11 billion. That deal is expected to close in September.
Frontier has asked for--and received--time to review the potential US West merger, according to the sources. As part of its buyout agreement, Frontier must approve any acquisition by Global Crossing valued at more than $2.5 billion.
Last month, the company struck a deal to buy the undersea cable services business of Cable & Wireless for an estimated $885 million in cash and debt.
Taken together, the deals would propel Global Crossing to near-powerhouse status in the telecommunications industry, with $17 billion in yearly sales and a market value nearing $70 billion.
US West, created from the breakup of AT&T in 1984, has long been considered among the weakest of the local phone companies, largely because its territory includes mostly small towns, with the exceptions of Denver, Salt Lake City, Phoenix, Seattle and Las Vegas.
To date, US West and BellSouth remain the only Baby Bell companies on the sidelines of the industry's recent merger craze.
"US West has always felt that it got stuck with the most expensive areas to serve of all the Baby Bells, and they've been trying to get acquired," said former Sen. Larry Pressler, an author of the Telecommunications Act of 1996 who now heads the telecommunications practice at O'Connor & Hannan, a Washington law firm. "This would be a very synergistic deal."
Still, on Friday some analysts cautioned that the US West marriage could create regulatory snags for Global Crossing's Frontier deal, because it would combine long-distance service with a Baby Bell that has not yet earned entry into long-distance.
But Global Crossing has big-name executives, including founder and financier Gary Winnick, former AT&T executive Bob Annunziata and others, determined to make it work.
US West shares surged $2.25 to $62.25 while Frontier fell $2.75 to $56.13, both on the New York Stock Exchange. Global Crossing shares rose $1.38 to $61.38 on Nasdaq.