Qwest Communications Internationals decision to buy back $1 billion of its stock from minority shareholder BellSouth may have been a goodwill gesture between amicable telecommunications giants. But it also gives new impetus to speculation that the two companies still have an interest in merging.
Joseph Nacchio,chief executive of Qwest, said he was happy to “help” BellSouth — a major investor in the Denver broadband communications company — raise capital for its plan to triple its Digital Subscriber Line (DSL) customer base this year. Nacchio further called the buyback of Qwest stock at $45 per share “opportunistic” for his company. Qwests stock traded at more than $47 per share on Jan. 16, the day the swap was announced.
In addition to the $1 billion stock deal, BellSouth agreed to buy $250 million worth of services from Qwest, to be paid for in Qwest stock.
Eric Rasmussen a senior consultant at TeleChoice, said the move will reduce BellSouths influence in Qwests affairs, but may reignite rumors of a merger between the two companies.
“Looking ahead from one to three years, I think having a more national presence is something that Qwest wants,” Rasmussen said. “They have already been expanding DSL service outside their home area in places like Houston and Sacramento [Calif.]. Maybe with BellSouth focusing on DSL expansion, it would make them attractive to Qwest for acquisition.”
Qwest intends to launch DSL service in 25 markets outside its territory, but plans to avoid entry in BellSouth territory to avoid competing.
The irony is that upstart Qwest may now be the hunter, when only two years ago it was the hunted.
BellSouth bought 10 percent of Qwest in 1999 to help it get new Internet services. In a June 1999 Securities and Exchange Commission filing, BellSouth said it was exploring alternatives, including “transactions which may result in the acquisition of a control position in or combination” with Qwest. Qwest won a bidding war that summer for regional Bell U S West, but has remained close to BellSouth.
BellSouth will still hold some 52 million shares of Qwest stock after the transaction.
The stock announcement came in a week when Qwest touted major improvements in the local phone service it took over from U S West last summer. It also announced a new package of bundled services, dubbed “e-solutions,” for small and midsize business customers.
As part of its bid to win regulatory approval to offer long-distance service inside its 14-state region, Qwest also announced permanent line sharing agreements with rivals to underscore that it is opening its network.
Some analysts chalked up the billion-dollar deal and Qwests other announcements as more chess moves in its shifting telecommunications industry strategies.
“The industry is in such flux right now,” said Jeff Kagan, an independent telecommunications analyst in Atlanta. “Many of these companies had eyes bigger than their stomachs, and they were trying to focus on too many things. Now they are returning to a laser-like focus on their best opportunities.”
Kagan said BellSouths decision to sell its stock is consistent with its moves away from cable and toward wireless and DSL services. “Those are very capital-intensive efforts and they need the cash,” he said. “They had invested in Qwest, and now they want to invest in themselves.”