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As British Telecom and AT&T were unwinding their Concert joint venture, Qwest Communications International announced two major European deals expected to hasten its plan to become a major pan-European service provider.
Qwest will boost its stake in KPNQwest to 47.5 percent and KPNQwest will buy the backbone assets of troubled Global TeleSystems in a preplanned bankruptcy filing, creating Europes largest data and Internet service provider. When the deals close KPNQwest will have a 60-city, 15,600-mile fiber optic network connected to Qwests global network.
“For our purposes, this gives us greater clarity and the rapid decision making ability to move KPNQwest into the position we envisioned in Europe, which is to mirror Qwest on the far side of the Atlantic,” said Qwest Chairman Joseph P. Nacchio, who also is chairman of KPNQwests board.
Qwests announcement came late Thursday, on the heels of AT&T and British Telecom announcing they will abandon their European pairing, eliminating 2,300 jobs and taking a total of $7 billion in charges.
“I think its ironic that we are making this announcement just as two of the traditional market leaders dissolve a venture that attempted exactly what we are stepping up to do,” Nacchio said.
Qwest will pay its Dutch partner KPN $65 million cash for about 14 million shares in KPNQwest. That works out to about $4.58 per share, a 20 percent discount to Thursdays close of $5.75 per share. The Anschutz Company, controlled by Qwests top shareholder, Philip Anschutz, will acquire another 6 million shares at the same price.
The deal, expected to close by year-end, gives Qwest the option to take an even larger stake in KPNQwest, though Nacchio said “I dont need to consolidate it or own it, I need to influence it.”
KPNQwest will acquire GTSs Ebone and Central Europe businesses in a pre-packaged bankruptcy filing in the Netherlands and the U.S. for approximately $580 million, issuing about $190 million in 10-year convertible notes to bondholders in exchange for about $1.7 billion in debt. KPNQwest also will assume a $190 million line of credit and leases valued at about $225 million. GTS is expected to have about $22 million in cash at closing. A consortium of Citibank, Deutschebank AG, Bank of America, DKW and ABN Amro has agreed to boost the credit line to $450 million.
The KPNQwest-GTS deal should close by March. It is subject to approval by courts, shareholders and unions.
KPNQwest President and CEO Jack A. McMaster said his company should be able to rapidly recoup the cost of acquisition in part because the merged company will have massive purchasing power, and because KPNQwest can now stop planned network and data center construction in Europe.
“This deal takes the KPNQwest construction program and brings it to its conclusion. We had ambitions to build a 50-city network. With this new asset, we have 60 cities. One of the major complaints about KPNQwest has been the lack of local reach in the network. With this transaction, we pick up 14 metro fiber rings.”
GTSs operations extend deep into the U.K. and key areas of Eastern Europe, Spain, Italy and Ireland with 14 metro fiber networks and 10 other cities connected by fiber. The number of Web hosting centers will more than double to 30.
“Its a good deal at the right time,” Nacchio said.