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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
June 13, 1999
Date of Report (Date of earliest event reported)
QWEST COMMUNICATIONS INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
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Delaware 000-22609 84-1339282
(State of other jurisdiction (Commission (IRS employer
of incorporation) file no.) identification no.)
555 Seventeenth Street, Suite 700
Denver, Colorado 80202
(Address of principal executive offices) (Zip code)
(303) 291-1400
Registrant's telephone number,
including area code
Not applicable
(Former name or address, if changed since last report)
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Item 5. Other Events.
On June 13, 1999, Qwest Communications International Inc., a Delaware
corporation ("Qwest"), offered to acquire U S WEST, Inc., a Delaware corporation
("U S WEST"), and Frontier Corporation, a New York corporation ("Frontier"), in
separate transactions. A copy of the Qwest press release, dated June 13, 1999,
and the Qwest analyst presentation, dated June 14, 1999, are attached hereto as
Exhibits 99.1 and 99.2, respectively, and are incorporated herein by reference.
This Current Report on Form 8-K contains or incorporates by reference
forward-looking statements that involve risks and uncertainties. These
statements may differ materially from actual future events or results. Readers
are referred to the documents filed by Qwest with the Securities and Exchange
Commission, which identify important risk factors that could cause actual
results to differ from those contained in the forward-looking statements.
These materials include analysts' estimates and other information prepared
by third parties for which Qwest assumes no responsibility. In addition, certain
statements regarding synergies and other projections and information contained
in the analyst presentation and press release are based on publicly available
information regarding U S West and Frontier. Qwest undertakes no obligation to
review or confirm analysts' expectations or estimates or such publicly available
information or to release publicly any revisions to any forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
Exhibit 99.1 -- Press release of the Registrant, dated June 13, 1999.
Exhibit 99.2 -- Analyst presentation of the Registrant, dated June 14, 1999.
2
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QWEST COMMUNICATIONS
INTERNATIONAL INC.
By: /s/ Robert S. Woodruff
------------------------------------------
Name: Robert S. Woodruff
Title: Executive Vice President -
Finance and Chief Financial
Officer
June 14, 1999
3
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EXHIBIT INDEX
Exhibit 99.1 -- Press release of the Registrant, dated June 13, 1999.
Exhibit 99.2 -- Analyst presentation of the Registrant, dated June 14, 1999.
4
Letterhead of Qwest
FOR IMMEDIATE RELEASE Contacts: Media Contact: Investor Contact:
Tyler Gronbach Lee Wolfe
6/13 and 6/14 only: 800-567-7296
c/o Kekst and Company [email protected]
(212) 521-4800
After 6/14: (303) 992-2155
[email protected]
QWEST COMMUNICATIONS OFFERS TO ACQUIRE U S WEST AND FRONTIER
IN PLAN TO CREATE $87 BILLION WORLDWIDE COMMUNICATIONS COMPANY
-- U S WEST Shareholders to Receive Up to $80.00 Per Share
in Qwest Common Stock --
-- Frontier Shareholders to Receive Up to $75.00 Per Share, Including
$20.00 in Cash and Up to $55.00 Per Share in Qwest Common Stock --
-- Two Transactions Valued at $55 Billion in Cash and Equity
and $11.4 Billion in Assumed Debt --
-- New Company Will Deliver Wide Range of Broadband Applications
and Services, Benefit 31 Million Customers, Spur Local Competition --
-- Both Proposals are Strategically and Financially Superior
to Pending U S WEST and Frontier Transactions --
DENVER, June 13, 1999 - Qwest Communications International Inc. (Nasdaq: QWST)
today offered to acquire U S WEST, Inc. (NYSE: USW) and Frontier Corporation
(NYSE: FRO) in separate transactions for a total of $55 billion in cash and
equity and $11.4 billion in assumed debt. The proposed transactions will enable
Qwest to bring innovative Internet communication services and accelerate the
delivery of broadband connectivity to more than 31 million consumers and
businesses across the United States. The new company will have a combined equity
market capitalization of $87 billion, be headquartered in Denver and employ
approximately 71,000 people.
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2
"With the proposed acquisitions of U S WEST and Frontier, we take the next
logical step in accelerating our delivery of Internet-based, broadband
communications services to customers," said Qwest Chairman and CEO Joseph P.
Nacchio. "The Internet communications powerhouse we intend to create will bring
together the three companies' network infrastructure, applications and services,
as well as their customer distribution channels, to further strengthen Qwest's
worldwide, first-to-market leadership position and fuel our continued growth."
Qwest said the proposed Qwest/U S WEST/Frontier combination will generate many
strategic and customer benefits. These include:
- -- creation of a combined enterprise with $22 billion of pro forma year-2000
revenue and $8 billion of pro forma year-2000 EBITDA (earnings before
interest, taxes, depreciation and amortization);
- -- accelerated implementation of Qwest's growth strategy, including deployment
of its industry-leading Internet platform and local broadband connectivity
services;
- -- enhanced Qwest leadership in value-added services through 19 combined
CyberCenters, strategic alliances and network facilities; and
- -- financial and operational scale and scope through lower unit costs achieved
by serving an expanding base of more than 31 million customers, including
multinational corporations.
Qwest expects the combined enterprise to realize:
- -- total synergies of approximately $14 billion through the year 2005;
- -- annual revenue growth of between 15% and 17% after Qwest receives approval
to provide interLATA long-distance service throughout the U S WEST region;
and
- -- annual growth in EBITDA of approximately 20% after Qwest receives approval
to provide interLATA long-distance service throughout the U S WEST region.
Qwest expects the combination to increase Qwest's earnings per share in the
first year following completion of the U S WEST transaction, and to be
increasingly accretive thereafter. Qwest said it expects to complete the
Frontier and U S WEST transactions by December 1999 and mid-year 2000,
respectively, dates which are consistent with the closings projected for the
pending transactions involving Frontier and U S WEST.
"Because of our proven ability to adapt rapidly to shifts in the marketplace and
effectively implement our strategic business plan, Qwest is uniquely positioned
to capitalize immediately on the skills and resources of the combined enterprise
for the benefit of shareholders, customers, employees and the communities we
serve," said Mr. Nacchio, who will be chairman and chief executive officer of
the combined company.
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3
The two acquisition proposals were communicated in separate letters sent today
by Mr. Nacchio to U S WEST Chairman, President and CEO Solomon D. Trujillo and
to Frontier CEO Joseph P. Clayton. Neither proposal is conditioned upon
acceptance of the other proposal. The full texts of the two letters are
attached to this press release.
Qwest/U S WEST Combination
Qwest has offered to acquire U S WEST, a Denver-based provider of communications
services to more than 25 million customers in 14 states, for 1.738 shares of
Qwest common stock for each share of U S WEST common stock. If Frontier agrees
to a business combination with Qwest, the consideration payable to U S WEST
shareholders will be increased to 1.783 shares of Qwest common stock for each
share of U S WEST common stock. In either case, the transaction will be
accounted for as a purchase and will be tax-free to U S WEST shareholders.
Based on the closing price of Qwest's shares on Friday, June 11, 1999, the value
of Qwest's offer for U S WEST common stock is $80.00 per share if Frontier
agrees to a business combination with Qwest and $78.00 per share if Frontier and
Qwest do not agree to a business combination. The total equity market value of
the Qwest/U S WEST transaction is $41.3 billion ($40.2 billion if Frontier does
not agree to a business combination with Qwest). In addition, Qwest will assume
$10 billion of U S WEST net debt.
Assuming Frontier agrees to a business combination with Qwest, Qwest's offer for
U S West represents a 45.8% premium to U S WEST's closing share price of $54.875
on Friday, June 11 and a 28.5% premium to the closing price of U S WEST on May
14, 1999, the last trading day prior to the announcement of U S WEST's merger
agreement with Global Crossing. The offer also represents a premium of 25.4%
over the value to U S WEST shareholders of the pending transaction with Global
Crossing on June 11. If Frontier does not agree to a business combination with
Qwest, the Qwest offer for U S WEST represents premiums of 42.1% and 25.3% to
the corresponding closing prices of U S WEST common stock on June 11 and May 14,
respectively. This offer also represents a premium of 22.2% over the value to U
S WEST shareholders of the pending Global Crossing transaction on June 11.
Qwest expects to invite Mr. Trujillo of U S WEST to become Vice Chairman of
Qwest after the completion of the Qwest/U S WEST transaction, and to invite Mr.
Trujillo and three other U S WEST directors to become Qwest directors at that
time.
Qwest stated that in order to ensure completion of the U S WEST transaction, it
is prepared to take all actions necessary to comply with current restrictions on
the provision of long-distance service in the U S WEST region. Qwest noted that
U S WEST recently announced plans to take steps to accelerate its efforts to
achieve compliance with the requirements that would permit U S WEST to offer
long-distance service in its region, and that Qwest strongly supported that
decision.
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4
Qwest/Frontier Combination
Qwest has also offered to acquire Frontier Corporation, a Rochester, New
York-based provider of facilities-based, integrated communications and Internet
services with about two million customers in 35 states, for cash and Qwest
common stock. Qwest will pay $20.00 in cash and 1.181 shares of Qwest common
stock for each share of Frontier common stock. If U S WEST agrees to a business
combination with Qwest, the common stock component of the consideration to be
paid to Frontier shareholders will be increased to 1.226 shares of Qwest common
stock for each share of Frontier common stock.
Based on the closing price of Qwest common stock on Friday, June 11, the Qwest
cash and stock offer has a value of $75.00 per Frontier share if U S WEST also
agrees to a business combination with Qwest and $73.00 per share if U S WEST
does not agree to a business combination with Qwest. The total market value of
the Qwest/Frontier transaction is $13.6 billion if U S WEST agrees to a business
combination with Qwest and $13.2 billion if U S WEST does not agree to a
business combination with Qwest. In addition, Qwest will assume $1.4 billion of
Frontier net debt. The transaction will also be accounted for as a purchase and
the stock portion of Qwest's offer will be tax-free for Frontier shareholders.
Assuming U S WEST agrees to a business combination with Qwest, the Qwest offer
for Frontier represents a 35.3% premium to Frontier's closing share price of
$55.44 on Friday, June 11, and a 68.1% premium to the closing price of Frontier
on March 16, 1999, the day prior to the announcement of Frontier's merger
agreement with Global Crossing. This offer also represents a 19.0% premium over
the value to Frontier's shareholders of the pending transaction with Global
Crossing on June 11. If U S WEST does not agree to a business combination with
Qwest, the Qwest offer for Frontier represents premiums of 31.7% and 63.6% to
the corresponding closing prices of Frontier's common stock on June 11 and March
16, respectively. This offer also represents a premium of 15.9% over the value
to Frontier's shareholders of the pending Global Crossing transaction on June
11.
Qwest has received financing commitments from DLJ Capital Funding, Inc. and Bank
of America, NT & SA to supplement its existing cash reserves for the purpose of
funding the cash portion of the consideration to be paid to Frontier
shareholders and to pay transaction fees and expenses.
Qwest expects to invite two directors of Frontier, including Mr. Clayton, to
become Qwest directors after the completion of the Qwest/Frontier transaction.
The Combined Qwest/U S WEST/Frontier - Strategic Fit
The combined Qwest/U S WEST/Frontier enterprise will leverage and further
strengthen Qwest's industry-leading assets, including its Internet backbone and
value-added Internet Protocol (IP) platform, and accelerate broadband
connectivity for millions of customers.
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5
Among the many strategic assets of the new company will be:
- -- Qwest Macro Capacity Fiber Network, spanning 18,500 miles in the United
States, combined with U S WEST's 40,400-mile network and Frontier's
18,000-mile network;
- -- Frontier's eleven GlobalCenters for Internet web hosting and data center
business;
- -- Qwest's seven CyberCenters;
- -- Qwest's venture with KPN, the Dutch telecommunications company, to build
and operate a high-capacity European fiber optic, IP-based network that has
2,100 miles and will span 8,100 miles when it is completed in 2001;
- -- U S WEST's 35,000 broadband local digital subscriber lines (DSL) and
220,000 PCS subscribers; and
- -- U S WEST's !NTERPRISE data networking business, with 200,000 Internet
access customers.
The Combined Qwest/U S WEST/Frontier - Financial Aspects
Qwest anticipates that the two transactions will result in total operating
synergies of approximately $14 billion over the first five post-completion
years, including the following:
- -- Incremental revenues (net of costs) of $2.9 billion to $3.1 billion as the
combined enterprise expands its local, data, IP and long-distance services.
- -- Operating cost savings of between $6.7 billion and $7.1 billion in such
areas as network operations and maintenance, sales and marketing, billing,
customer and back-office support and by capturing efficiencies in
procurement and other areas.
- -- Capital expenditure savings of between $3.8 billion and $4.0 billion by
eliminating duplication in the three companies' planned network buildouts
and in other infrastructure and back-office areas.
Financial and Strategic Superiority of Qwest's Proposals
Qwest stated that its proposals for U S WEST and Frontier are financially and
strategically superior to Global Crossing's pending transactions.
- -- Frontier's and U S WEST's shareholders will receive a higher premium for
their shares;
- -- Frontier's and U S WEST's shareholders will receive a better stock
currency, backed by premier assets and a strong management team with a
proven track record of performance and growth;
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6
- -- Frontier's and U S WEST's shareholders will benefit from value through
greater realizable synergies;
- -- Qwest's transaction structures are simple; and
- -- integration of the three companies has a higher probability of success
because of Qwest's successful experience in integrating operations.
Each of the transactions is subject to regulatory and shareholder approvals and
other customary closing conditions, including expiration of the applicable
Hart-Scott-Rodino waiting periods.
Qwest's financial and legal advisers on the transaction are Donaldson, Lufkin &
Jenrette and Davis Polk & Wardwell, respectively.
About Qwest
Qwest Communications International Inc. (Nasdaq: QWST) is a leader in reliable
and secure broadband Internet-based data, voice and image communications for
businesses and consumers. Headquartered in Denver, Qwest has more than 8,500
employees working in North America, Europe and Mexico. The Qwest Macro
Capacity(R) Fiber Network, designed with the newest optical networking, will
span more than 18,500 route miles in the United States when it is completed by
mid-1999, and an additional 315-mile network route that will be completed by the
end of the year. In addition, Qwest and KPN, the Dutch telecommunications
company, have formed a venture to build and operate a high-capacity European
fiber optic, Internet Protocol-based network that has 2,100 miles and will span
9,100 miles when it is completed in 2001. Qwest also has nearly completed a
1,400-mile network in Mexico. For more information, please visit the Qwest web
site at www.qwest.com.
Figures reflecting the combined companies' equity market capitalization were
computed using the Treasury stock method and based on figures reported in their
most recent public filings.
Note to Editors and Producers
B-Roll footage is available through the following satellite feeds:
June 13: 4:30 PM - 5:00 PM, C Band, Telstar 5, Transponder 24
June 13: 7:30 PM - 8:00 PM, C Band, Telstar 5, Transponder 24
June 14: 5:00 AM - 5:30 PM, C Band, Telstar 5, Transponder 24
June 14: 9:30 AM - 10:00 AM, C Band, Telstar 4, Transponder 9
Audio: 6.2/6.8
# # #
This release contains forward-looking statements that involve risks and
uncertainties. These statements may differ materially from actual future events
or results. Readers are referred to the documents filed by Qwest with the SEC,
specifically the most recent reports which identify important risk factors that
could cause actual results to differ from those contained in the forward-looking
statements, including potential fluctuations in quarterly results, dependence on
new product development, rapid technological and market change, failure to
complete the network on schedule and on budget, financial risk management and
future growth subject to risks, Qwest's ability to achieve Year 2000 compliance,
and adverse changes in the regulatory or legislative environment. This release
includes analysts' estimates and other information prepared by third parties for
which Qwest assumes no responsibility. In addition, certain statements regarding
synergies and other projections and information contained in this release are
based on
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7
publicly available information regarding U S WEST and Frontier. Qwest
undertakes no obligation to review or confirm analysts' expectations or
estimates or such publicly available information or to release publicly any
revisions to any forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
The Qwest logo is a registered trademark of Qwest Communications International
Inc. in the U.S. and certain other countries.
The following is the letter sent today by Mr. Nacchio of Qwest to Mr. Trujillo
of U S WEST:
Qwest Communications International Inc.
700 Qwest Tower
555 Seventeenth Street
Denver, Colorado 80202
June 13, 1999
Mr. Solomon D. Trujillo
Chairman, President and Chief Executive Officer
U S WEST, Inc.
1801 California Street
Denver, Colorado 80202
Dear Sol:
Qwest Communications International Inc. is pleased to offer to acquire
all of U S WEST, Inc. for Qwest common stock. Qwest will pay 1.738 shares of
Qwest common stock for each share of U S WEST common stock. Based on Friday's
closing price for Qwest shares, our offer has a value of $78.00 per share. We
are also announcing our offer to acquire Frontier Corporation in a stock and
cash transaction valued at approximately $13.6 billion and, in the event that
Frontier accepts our proposal and we enter into a merger agreement with
Frontier, we will increase the consideration payable to U S WEST shareholders to
1.783 shares of Qwest common stock having a value of $80.00 per U S WEST share.
If Frontier agrees to a business combination with us, our offer would
represent a 25.4% premium to the value of U S WEST's proposed merger with Global
Crossing Ltd. based on the closing price of Global Crossing's shares on Friday,
a 45.8% premium to Friday's closing price of U S WEST and a 28.5% premium to the
trading price of U S WEST prior to the announcement of its merger agreement with
Global Crossing. If we do not conclude our business combination agreement with
Frontier, our proposal would still represent a 22.2% premium to the value of U S
WEST's proposed merger with Global Crossing, a 42.1% premium to Friday's closing
price of U S WEST and a 25.3% premium to the trading price of U S WEST prior to
the announcement of its merger agreement with Global Crossing.
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8
Neither of our acquisition proposals is conditioned upon the success
of the other proposal and Qwest is prepared to enter into a binding agreement
with U S WEST whether or not we conclude our transaction with Frontier.
Upon consummation of the transaction, we will invite you to become Vice
Chairman of the Qwest Board and we would expect to invite up to four members of
the current U S WEST Board, including you, to join the Qwest Board.
The combination of our two companies will allow us to combine the
management talents of both organizations. We expect an extremely smooth
transition given the fact that we are -- and will remain -headquartered in
Denver.
The combination of our two companies is truly a powerful opportunity
for our respective shareholders, employees and customers. The combination will
accelerate the delivery of Internet-based broadband communications services to a
large customer base and, by bringing together the network infrastructure,
applications and services as well as the customer distribution channels of our
companies, will create a truly worldwide internet communications powerhouse.
We believe that the combination will result in significant operating
synergies, aggregating approximately $9.1 billion to $10.1 billion through the
year 2005 from our combination and $14 billion through the year 2005 from a
combination of U S WEST, Frontier and Qwest. These synergies are comprised of
(i) incremental revenues as the combined company expands its local, data, IP and
long-distance service; (ii) operating cost savings in areas such as network
operations and maintenance, sales and marketing, billing, customer and back
office support as well as in procurement efficiencies; and (iii) capital savings
by eliminating duplication of the companies planned network buildouts and in
other infrastructure and back-office areas. We are prepared to meet with you to
discuss the analysis performed by us that underlies these synergies and
demonstrates their feasibility. Our analysis of synergies is based on our
analysis of information concerning you that is publicly available, and we would
expect that working with you we could identify significantly greater synergies
resulting from a combination of our two companies.
Our proposal is financially superior to your pending transaction with
Global Crossing. Not only will your shareholders receive a higher price for
their U S WEST shares in a simpler transaction structure, but they will also
receive a superior stock reflecting Qwest's premier assets, management's
operating record, strong growth prospects and the greater realizable synergies
resulting from our combination.
Qwest's principal shareholder has indicated its readiness to enter into
a voting agreement concerning its obligation to vote in favor of the merger at
the meeting of Qwest shareholders comparable to the agreement entered into by
Global Crossing's controlling shareholders.
We are confident of our ability to complete this transaction as quickly
as the proposed Global Crossing merger. Our legal advisors are confident of our
ability to
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9
obtain all necessary approvals in a timely manner and we are prepared
to commit to take steps, including disposition of certain operations, required
to obtain such consents. Our offer will be tax-free to U S WEST shareholders and
we can provide tax treatment and tax consequences of our proposed transaction
equivalent to those of the Global Crossing transaction.
We believe that our merger is fully consistent with the policy
underlying the Telecommunications Act of 1996 and is strongly in the public
interest. While obtaining regulatory approval under Section 271 of the
Telecommunications Act is not a condition of the closing of our transaction, we
would ask you to make the same commitments you have made in connection with the
Global Crossing transaction to accelerate the process of obtaining such
approval.
Given the clear superiority of our offer to the proposed Global
Crossing merger, we would like to meet with you and your advisors as soon as
possible to finalize a definitive agreement between our companies. The offer is,
of course, subject to entering into such an agreement. In this regard, we are
ready to enter into a merger agreement substantially similar to the Global
Crossing agreement. A copy of the proposed merger agreement is attached to this
letter. We are also ready to exchange confidential information. Qwest is
committed to bringing the combination between our companies to a successful
conclusion and we would be delighted to discuss any aspect of our proposal.
We look forward to meeting at the earliest opportunity to conclude this
mutually beneficial transaction for both our companies. Please forward to us the
form of confidentiality agreement we are required to execute to further this
matter. In addition, we and our advisors will be happy to meet with U S WEST at
the time of your choosing to answer any questions about our proposal. A list of
persons who may be contacted at Qwest and at our financial and legal advisors is
attached to this letter.
Sincerely,
Joseph P. Nacchio
# # #
The following is the letter sent today by Mr. Nacchio of Qwest to Mr. Clayton of
Frontier:
Qwest Communications International Inc.
700 Qwest Tower
555 Seventeenth Street
Denver, Colorado 80202
June 13, 1999
Mr. Joseph P. Clayton
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10
Chief Executive Officer
Frontier Corporation
180 South Clinton Avenue
Rochester, New York 14646
Dear Joe:
Qwest Communications International Inc. is pleased to offer to acquire
all of Frontier Corporation for cash and Qwest common stock. Qwest will pay $20
in cash and 1.181 shares of Qwest common stock for each share of Frontier common
stock. Based on Friday's closing price for Qwest shares, our cash and stock
offer has a value of $73.00 per Frontier share. We are also announcing our offer
to acquire U S WEST, Inc. in a stock-for-stock transaction having total equity
market value of approximately $41.3 billion and, in the event that U S WEST
accepts our proposal and we enter into a merger agreement with U S WEST, we will
increase the consideration payable to Frontier shareholders to $20 in cash and
1.226 shares of Qwest common stock having a total value of $75.00 per Frontier
share.
The stock portion of our offer will be tax-free to Frontier
shareholders. If U S WEST agrees to a business combination with us, our offer
would represent a 19% premium to the value of Frontier's proposed merger with
Global Crossing Ltd. based on the closing price of Global Crossing's shares on
Friday, a 35.3% premium to Friday's closing price of Frontier and a 68.1%
premium to the trading price of Frontier prior to the announcement of its merger
agreement with Global Crossing. If we do not conclude our business combination
agreement with U S WEST, our proposal would still represent a 15.9% premium to
the value of Frontier's proposed merger with Global Crossing, a 31.7% premium to
Friday's closing price of Frontier and a 63.6% premium to the trading price of
Frontier prior to the announcement of its merger agreement with Global Crossing.
Neither of our acquisition proposals is conditioned upon the success of
the other proposal and Qwest is prepared to enter into a binding agreement with
Frontier whether or not we conclude our transaction with U S WEST.
Upon consummation of the transaction, we will invite up to two of
Frontier's current directors, including you, to join the Qwest Board.
The combination of our two companies is truly a powerful opportunity
for our respective shareholders, employees and customers. The combination will
accelerate the delivery of Internet-based broadband communications services to a
large customer base and, by bringing together the network infrastructure,
applications and services as well as the customer distribution channels of our
companies, will create a truly worldwide internet communications powerhouse.
We believe that the combination will result in significant operating
synergies, aggregating approximately $4 billion to $4.5 billion through the year
2005 from our combination and $14 billion through the year 2005 from a
combination of U S WEST,
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11
Frontier and Qwest. These synergies are comprised of (i) incremental revenues as
the combined company expands its local, data, IP and long-distance service; (ii)
operating cost savings in areas such as network operations and maintenance,
sales and marketing, billing, customer and back office support as well as in
procurement efficiencies; and (iii) capital savings by eliminating duplication
of the companies planned network buildouts and in other infrastructure and
back-office areas. We are prepared to meet with you to discuss the analysis
performed by us that underlies these synergies and demonstrates their
feasibility. Our analysis of synergies is based on our analysis of information
concerning you that is publicly available, and we would expect that working with
you we could identify significantly greater synergies resulting from a
combination of our two companies.
Our proposal is financially superior to your pending transaction with
Global Crossing. Not only will your shareholders receive a higher price for
their Frontier shares in a simpler transaction structure, but they will also
receive a superior stock reflecting Qwest's premier assets, management's
operating record, strong growth prospects and the greater realizable synergies
resulting from our combination.
Qwest's principal stockholder has indicated its readiness to enter into
a voting agreement concerning its obligation to vote in favor of the merger at
the meeting of Qwest shareholders comparable to the agreement entered into by
Global Crossing's controlling shareholders.
We are confident of our ability to complete this transaction as quickly
as the proposed Global Crossing merger. Our offer contains no financing
contingencies. Qwest has received financing commitments from Donaldson, Lufkin &
Jenrette Capital Funding, Inc. and from Bank of America, NT & SA to supplement
its existing cash reserves for the purpose of funding the cash portion of the
consideration to be paid to Frontier shareholders and to pay the transaction
fees and expenses.
We believe that our merger is fully consistent with the policy
underlying the Telecommunications Act of 1996 and is strongly in the public
interest. Our legal advisors are confident of our ability to obtain all
necessary approvals in a timely manner.
Given the clear superiority of our offer to the proposed Global
Crossing merger, we would like to meet with you and your advisors as soon as
possible to finalize a definitive agreement between our companies. The offer is,
of course, subject to entering into such an agreement. In this regard, we are
ready to enter into a merger agreement substantially similar to the Global
Crossing agreement. A copy of the proposed merger agreement is attached to this
letter. We are also ready to exchange confidential information immediately.
Qwest is committed to bringing the combination between our companies to a
successful conclusion and we would be delighted to discuss any aspect of our
proposal.
We look forward to meeting at the earliest opportunity to conclude this
mutually beneficial transaction for both our companies. Please forward to us the
form of
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12
confidentiality agreement we are required to execute to further this
matter. In addition, we and our advisors will be happy to meet with Frontier at
any time to answer any questions about our proposal. A list of persons who may
be contacted at Qwest and at our financial and legal advisors is attached to
this letter.
Sincerely,
Joseph P. Nacchio
# # #
Qwest's Offers Are Superior
More Shareholder Value, Real Synergies, Strong Strategic Fit, Simple Structure
o For USWEST:
- 25% premium over current offer
- Stronger currency
- Greater realizable synergies
- Better fit with Qwest assets and strategic direction
o For Frontier
- 19% premium over current offer
- Stronger stock plus cash component
- Leading combined internet/ hosting assets
- Simple deal structure
- Better fit with Qwest's assets and strategic direction
o Qwest has demonstrated abilities to execute
(more)
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13
QWEST AT A GLANCE
Qwest Combined
Standalone Companies
Revenue (2000) $4.65 billion $22 billion
EBITDA (2000) $1.1 billion $8 billion
Customers 4 million 31 million
Employees 8,500 71,000
U.S. Route Miles 18,815 79,200
U.S. Fiber Miles 900,000 2.9 million
Global Fiber Miles 1.3 million 3.35 million
Cyber Centers 7 23
Local Broadband Markets 40 75
DSL Lines -- 35,000
PCS Subscribers -- 220,000
(end of document)
[Qwest LOGO]
ride the light [sm]
Qwest
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[Qwest LOGO]
This presentation contains forward-looking statements that involve risks and
uncertainties. These statements may differ materially from actual future events
or results. Readers are referred to the documents filed by Qwest with the SEC,
which identify important risk factors that could cause actual results to differ
from those contained in the forward-looking statements.
These materials include analysts' estimates and other information prepared by
third parties for which Qwest assumes no responsibility. In addition, certain
statements regarding synergies and other projections and information contained
in this presentation are based on publicly available information regarding U S
West and Frontier. Qwest undertakes no obligation to review or confirm analysts'
expectations or estimates or such publicly available information or to release
publicly any revisions to any forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The Qwest logo is a registered trademark of Qwest Communications International
Inc. in the U.S. and certain other countries.
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[Qwest LOGO]
Joseph P. Nacchio
Chairman
and
Chief Executive Officer
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[Qwest LOGO] We are announcing
[U S WEST Logo] o A superior offer to U S WEST shareholders for a merger
with Qwest
[Frontier o A superior offer to Frontier shareholders for a merger
Logo] with Qwest
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[Qwest LOGO] The Announcement
[Qwest LOGO]
[U S WEST Logo]
[Frontier Logo]
Creating an $87 Billion Worldwide Communications Powerhouse
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[Qwest LOGO] Why Combine These Companies?
o Expands and accelerates the Qwest growth strategy -- worldwide deployment
of broadband Internet services by adding more:
-- Scale economies - size matters
-- Worldwide fiber backbone - fortify position
-- Broadband local access - direct access to customers
-- IP / Value-added data services - multimedia and ASP
-- Distribution and customers - reach more markets
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[Qwest LOGO] A Bigger and Stronger Company
Stand Alone Combined
----------- --------
2000 Estimates
- Revenue $4.65B $22B
- EBITDA $1.1B $8B
o Customers 4M 31M
o Employees 8,500 71,000
o Market Cap $36B $87B
(6/11/99)
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[Qwest LOGO] An Even Larger Network Presence
Stand Alone Combined
----------- --------
o U.S. Route Miles 18.8K 79.2K
o U.S. Fiber Miles 900K 2.9M
o U.S. MSAs On-net 150 175
o Europe Route Miles 2.1K 2.1K
o Europe Fiber Miles 100K 100K
o Trans-Oceanic 67 Gbps 67 Gbps
o Global Fiber Miles 1.3M 3.35M
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[Qwest LOGO] Expands Broadband Local Access
Stand Alone Combined
----------- --------
o Total Markets Covered 40 75
o Metro Fiber Rings 19 35
o Access Lines - 17M
o DSL Lines - 35,000
o DSL Markets 31 45
o Fixed Wireless Markets 40 40
o PCS Customers - 220,000
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[Qwest LOGO] Expands Service Line
Stand Alone Combined
----------- --------
o Hosting Centers 7 23
o OC-48 IP Miles 50,000 110,000
o Data/IP Solutions QIMM QIMM
GlobalCenter
!nterprise
o IP Employees 550 2,100
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[Qwest LOGO] Strong Regional Presence
[MAP OF US LISTING LARGE CORPORATIONS THAT HAVE HEADQUARTERS IN U S WEST
AREAS AND PRINCIPAL FRONTIER SERVICE AREA]
Microsoft, Boeing, Costco, Safeco, Weyerhaeuser, Nordstrom,
Airborne Freight, Nike, Pacificorp, American Stores, Miicroage, Phelps Dodge,
ConAgra, IBP, Berkshire Hathaway, Mutual of Omaha, Sun Healthcare, Dayton
Hudson, United Healthcare, Northwest Airlines, General Mills, Best Buy, 3M,
Maytag, Principal Financial, KN Energy, Ball Corp, Corporate Express, Bausch &
Lomb, Cabletron, Kodak, Xerox
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[Qwest LOGO] Robust U.S. Broadband Presence
[MAP OF US HIGHLIGHTING U S WEST AND BELLSOUTH SERVICE AREAS AND ILLUSTRATING
THE LOCATIONS THROUGHOUT THE US WHERE THE COMBINED COMPANY WOULD HAVE BROADBAND
PRESENCE DIRECTLY OR THROUGH AFFILIATES]
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[Qwest LOGO] An Expanding Global Multimedia Network
[MAP OF US, MEXICO, JAPAN AND EUROPE AND ATLANTIC AND PACIFIC OCEANS
ILLUSTRATING INTERNATIONAL FIBER NETWORK OF THE COMBINED COMPANY]
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[Qwest LOGO] Superior Terms to Other Offers
o Higher premiums
o Stronger currency with substantial company assets and management team support
o More value from greater realizable synergies
o Simple transaction structures
o Clear leadership
o Integration experience -- higher probability of success
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[Qwest LOGO] U S WEST Proposal
With Frontier Without Frontier
Terms 1.783 Qwest Shares 1.738 Qwest Shares
As of June 11
Value $80 $78
Premium to U S WEST price 46% 42%
Premium to Other Offer 25% 22%
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[Qwest LOGO] Frontier Proposal
With U S WEST Without U S WEST
Terms 1.226 Qwest Shares 1.181 Qwest Shares
+ $20 Cash + $20 Cash
As of June 11
Value $75 $73
Premium to Frontier price 35% 32%
Premium to Other Offer 19% 16%
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[Qwest LOGO] Merger Process
o Offers not conditioned upon each other
o Conditions to Closing
- Shareowner approval
- Regulatory approval
o Closing
- Same timing as other offer
- Close Frontier by year end 1999
- Close U S WEST by mid 2000
o Integration/synergy ramp up period 2H00-2001
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[Qwest LOGO]
Robert S. Woodruff
Executive Vice President
and
Chief Financial Officer
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[Qwest LOGO]
New Large Cap Growth Company
o $87B market capitalization
o Pro forma revenue goes to $22B
- Post 271 growth of 15-17%
o Pro forma EDITDA goes to $8B
- Post 271 growth of 20%+
o EPS accretive first year after close
o Growth in shareholder value
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[Qwest LOGO])
Large Cap Growth Company
Market Cap Revenue Growth
---------- ------- ------
Qwest Combined $87B $22B 15-18%
General Electric $330B $101B 14%
Wal-Mart $190B $142B 17%
MCIWorldcom $165B $30B 17%
Merck $160B $28B 14%
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[Qwest LOGO]
Combined Pro Forma Revenue
by Service Type
[ ] Data/Internet [ ] Local Voice
[ ] Long Distance [ ] PCS [ ] Other
2000E 2005E
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
(Pie chart showing 18% Data/Internet, (Pie chart showing 46% Data/Internet,
1% PCS, 9% Other, 25% Long Distance, 3% PCS, 3% Other, 22% Long Distance,
47% Local Voice) 26% Local Voice)
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[Qwest LOGO] Synergies
o Significant - $14B through 2005
o Real - specifically identified
o Attainable - proven experience in delivering
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[Qwest LOGO] Synergy Summary - Combined
2002 5 Year Total
Revenue (EBITDA Impact) $200-300 $2,900-3,100
Network/Operations $350-450 $2,200-2,400
SG&A $550-750 $4,500-4,700
Capital $700-800 $3,800-4,000
-------- ------------
Total $1,800-2,300 $13,400-14,200
($millions)
o Synergy ramp to full year impact in 2002
o Real synergies based on identified cost,
capital savings, and revenue enhancement
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[Qwest LOGO] Synergy Summary - U S WEST
2002 5 Year Total
Revenue (EBITDA Impact) $200-250 $2,600-2,750
Network/Operations $250-300 $1,600-1,700
SG&A $400-550 $2,900-3,000
Capital $400-450 $2,200-2,300
-------- ------------
Total $1,250-1,550 $9,300-9,750
($millions)
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[Qwest LOGO] Synergy Summary - Frontier
2002 5 Year Total
Revenue (EBITDA Impact) $0-50 $300-350
Network/Operations $100-150 $600-700
SG&A $150-200 $1,600-1,700
Capital $300-350 $1,600-1,700
-------- ------------
Total $550-750 $4,100-4,450
($millions)
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[Qwest LOGO] Synergy Components
o Revenue
- Local revenue enhancement
- Aggressive data expansion
- IP and value-added services
- Long distance
o Network Cost
- Network operations and maintenance
- Access and transport
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[Qwest LOGO] Synergy Components
o SG&A
- Billing and customer support solutions
- Back office support consolidation
- Distribution channel effectiveness
- Procurement efficiencies
o Capital
- Duplicative network buildout
- Infrastructure and back office duplication
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[Qwest LOGO]
The Right Transactions
by the Right Team
for the Right Reasons
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[Qwest LOGO] In Summary: It's About Growth
o Growth in Scale
o Growth in Scope
o Growth in Revenue
o Growth in EBITDA
o Growth in Opportunity
o GROWTH IN SHAREHOLDER VALUE
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[Qwest LOGO]
ride the light
[logo](SM)
Qwest(R)
