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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported) May 16, 1999
____________
U S WEST, Inc.
(Formerly "USW-C, Inc.")
________________________________________________________
(Exact Name of Registrant as Specified in Charter)
Delaware 1-14087 84-0953188
____________________________ ___________ ___________________
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
1801 California Street, Denver, Colorado 80202
________________________________________________________________________________
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (303) 672-2700
______________
USW-C, Inc.
________________________________________________________________________________
(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events.
As previously announced, on May 16, 1999, Global Crossing Ltd., a Bermuda
company ("Global Crossing"), and U S WEST, Inc., a Delaware corporation (" U S
WEST"), entered into an Agreement and Plan of Merger, dated as of May 16, 1999
(the "Merger Agreement"). A copy of a Q&A presentation, dated May 25, 1999
relating to the transactions contemplated by the Merger Agreement (the "Q&A
Presentation") is attached hereto as Exhibit 99 and is incorporated herein by
reference.
Item 7. Exhibits.
The following exhibit is filed as part of this Current Report on
Form 8-K:
Exhibit Number Exhibit
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99 Q&A Presentation
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
US WEST, Inc.
(Formerly "USW-C, Inc.")
(Registrant)
/s/ Thomas O. McGimpsey
____________________________
Thomas O. McGimpsey
Assistant Secretary
Date: May 26, 1999
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EXHIBIT INDEX
Exhibit No. Description
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99 Q&A Presentation
Investor Q&A
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The Merger
1. Explain the sequence of events in the U S WEST / Global
Crossing merger. On Sunday, May 16, Global Crossing and
U S WEST agreed to merge in a merger of equals in which the
shareholders of Global Crossing (including the former
shareholders of Frontier Corporation) and the shareholders
of U S WEST will exchange their shares of Global Crossing
and U S WEST for "tracking stock" in the combined entity.
The combined entity will issue two classes of tracking
stock: Class A or "LSP Stock", which is intended to
reflect the performance of the combined entity's Local
Service Provider group ("LSP"), and Class B or "GSP Stock",
which is intended to reflect the performance of the
combined entity's Global Service Provider group ("GSP").
Prior to the closing of the Global Crossing/U S WEST
merger, shareholders of Global Crossing and U S WEST will
be mailed forms to make an election as to their preferred
allocation between GSP Stock and LSP Stock. Following the
closing of the Global Crossing/U S WEST merger,
shareholders of both companies will receive GSP Stock and
LSP Stock based on their election, subject to pro ration if
either GSP Stock or LSP Stock is oversubscribed. It is
anticipated that the Global Crossing / U S WEST merger will
close in mid-2000 following receipt of regulatory
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approvals. See Exhibit 1 for a chronological summary of the
key events affecting the merger.
Tender Offer
2. Describe the terms of the tender offer. On May 21, 1999,
U S WEST commenced a tender offer for approximately 9.5% of
Global Crossing's outstanding shares, or 39,259,305 shares
(subject to pro ration) in the aggregate, for $62.75 per
share in cash. The tender price was negotiated as part of
the overall merger transaction based on the recent trading
history of Global Crossing and represents a 2.2% premium to
Global Crossing's closing price on May 14, 1999, the last
trading day prior to the announcement of the merger. The
tender offer will remain open for 20 business days (until
Friday, June 18, 1999), unless extended. Following the
merger, the Global Crossing shares purchased by U S WEST in
the tender offer will be canceled.
3. Why is U S WEST purchasing 9.5% of Global Crossing? Why is
U S WEST paying a premium? U S WEST believes that
establishing an immediate strategic relationship with
Global Crossing provides significant benefits to U S WEST's
business strategy. The minority investment in Global
Crossing will cement the alliance between the companies,
establishing a foundation for an ongoing strategic
relationship. U S WEST expects to combine its investment in
Global Crossing with transport arrangements,
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out-of-region DLEC opportunities and data joint ventures
that will provide both companies with incremental revenues
and profitability prior to the closing of the merger. U S
WEST's investment in Global Crossing was the result of an
arm's length negotiation and was part of the negotiations
of the overall terms of the merger.
4. Will Global Crossing's major shareholders participate in
the tender? The tender offer is open to all of Global
Crossing's shareholders. However, in order to provide an
opportunity for enhanced public participation, Global
Crossing's founder, Chairman, and largest shareholder, Gary
Winnick, and other senior executives (including Bob
Annunziata, Abbott Brown, Tom Casey, Dan Cohrs, Lodwrick
Cook, James Gorton, David Lee, Barry Porter, and Jack
Scanlon) will tender no more than 30% of the eligible
shares held by them or by the institutions they represent.
Other Global Crossing Directors will tender no more than
50% of the shares held by them or by the institutions they
represent. All other Global Crossing shareholders will
have the right to tender 100% of the eligible shares held
by them. To the extent that more than 39,259,305 Global Crossing
shares are tendered, each Global Crossing shareholder that tenders
will be pro rated.
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Assuming all shareholders tender all of their eligible
shares into the offer, Mr. Winnick and the senior
executives will retain approximately 95% of their total
holdings, and the Global Crossing Directors and the
institutions they represent will retain in excess of 91% of
their total holdings. As a result of the voluntary
restrictions by insiders, all other Global Crossing
shareholders will be able to sell at least 17% of their
holdings in the tender, if they desire. As noted above, as
part of the agreements concerning the tender offer,
Canadian Imperial Bank of Commerce, Continental Casualty
Corp., MRCo (an affiliate of Union Labor Life Insurance
Co.), or their affiliates, and the individual founders and
executives on Global Crossing's Board, which in aggregate
represent approximately 78% of the equity of Global
Crossing, have agreed not to sell their shares without
Global Crossing's consent until Global Crossing's merger
with Frontier has been completed.
Operational Benefits of the Transaction
5. Why have U S WEST and Global Crossing chosen each other as
partners? The merger between U S WEST and Global Crossing
will accelerate the strategic development of both
companies. Though we operate in related but separate lines
of business, we share the same vision for the future.
Global scale, end-to-end connectivity and full product
suites will be key success factors in the new
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telecommunications paradigm. To compete effectively, U S
WEST would benefit from expanding its business reach to the
major markets of the world. The Global Crossing network is
a premier vehicle that U S WEST can use to establish a
presence in every major world market. Its U.S. fiber optic
network opens up a low cost, high capacity means for the
combined company to compete for both data and voice
traffic. DLEC service roll-out can enhance the existing
35-city CLEC operation, and other data services will enjoy
faster, less expensive deployment using the fiber networks.
From Global Crossing's perspective, U S WEST's 16 million
access lines provide not only incremental traffic for
Frontier's and Global Crossing's networks (post approval
pursuant to Section 271 of the Telecommunications Act of
1996 ("Section 271")), but also customer relationships that
Global Crossing can utilize to sell higher margin data
services and international connectivity. In addition, our
combined data expertise and financial resources provide for
an accelerated roll-out of advanced data services on our
combined networks.
6. Explain the sources and amounts of synergies generated by
the transaction, both short and long term. The combination
of U S WEST with Global Crossing will allow us to offer a
more robust, broader suite of services to our customers
than either company could have offered on its own. In
addition, we will be able to utilize our local, national
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and global infrastructure and experience in developing
value-added, customer-oriented communications solutions to
enhance our ability to compete for the business of large
multinational corporate customers. Anticipated other
incremental synergies resulting from the merger include:
Synergy Opportunity
Operating Efficiencies Opportunity to reduce corporate
administrative functions that are
duplicative between U S WEST and
Frontier
In-Region Long Distance Faster market penetration
Global 1 Hop E-commerce, hosted commercial
applications with data centers deployed
domestically and interconnected via a
wholly-owned, state-of-the-art global
fiber optic network
In connection with the merger, Global Crossing will become
a U.S. corporation and, accordingly, will be subject to a
higher level of U.S. taxes.
We have also identified market opportunities that we expect
will produce substantial additional value as a result of
the merger. Opportunities to create new revenue in managed
data network services, Internet access, web hosting and
application services, and national CLEC and DLEC offerings,
as well as international services could have a substantial
net present value.
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7. Is there the potential for conflicts with the co-CEO
structure? We believe the co-CEO structure is a
significant strength, taking full advantage of the shared
vision and complementary backgrounds and strengths of Sol
Trujillo and Bob Annunziata in the context of a dynamic,
global business. Our management teams found while planning
this merger that they work well together, and they have
gained great respect for each other's knowledge and
capabilities. Importantly, the new CEOs share a common
vision of the need for global connectivity, strong,
data-centric vertical services and sufficient scale to be a
strong competitor in this rapidly changing industry. Both
sides are excited about the opportunities that lie ahead of
the new Global Crossing.
8. How will the transaction affect U S WEST's level of
investment in VDSL and other growth initiatives? The
merger of Global Crossing and U S WEST should enhance our
ability to accelerate the development of VDSL and other
growth initiatives, such as DSL, both within and outside of
U S WEST's service territory. The rapid national and
global introduction of these and other initiatives should
significantly benefit shareholders of both LSP and GSP.
9. What is the acquisition strategy going forward? We believe
that acquisitions are an important means of acquiring, in a
timely manner, assets, resources and expertise we do not
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currently possess. Both companies will continue to
individually evaluate acquisitions between signing and
closing of the merger. Given our shared vision, we expect
to be able to agree on the financial and strategic merits
of acquisition candidates. In the interim prior to
closing, however, each of Global Crossing and U S WEST will
limit its acquisitions to $3.0 billion (over those that
have been previously announced) in aggregate consideration
(debt plus equity) without requiring the other party's
consent. Once the merger is closed, we will be positioned
to generate significant growth using our existing platform
even without any further acquisitions. However, we may
selectively seek value-enhancing acquisitions that will
augment our position as a global communications company
offering a complete suite of services to a national and
international customer base. Like acquisitions prior to
the merger, selected future acquisitions may be financed
with debt or equity, or both.
Merger Transaction
10. Explain the exchange ratio. In the Global Crossing/U S WEST
merger, the exchange ratio will be "fixed" to ensure that
U S WEST shareholders and Global Crossing shareholders
(including the former Frontier shareholders) will each have
approximately 50% ownership in the combined entity. The
exchange ratio has not been fixed yet, because the
number of Global Crossing shares that will be outstanding
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cannot be determined until after the Global
Crossing/Frontier merger closes. Assuming the minimum
number of Global Crossing shares are issued in the Frontier
merger, the exchange ratio will be approximately 1.21.
Assuming that the maximum number of Global Crossing shares
are issued in the Frontier merger, the exchange ratio will
be approximately 1.46. The exchange ratio will determine
the number of Election Rights (rights to acquire GSP Stock
and LSP Stock) that each shareholder of U S WEST and Global
Crossing will receive.
11. Explain what a U S WEST or Global Crossing shareholder will
receive in the transaction. Each shareholder of U S
WEST and Global Crossing will receive GSP Stock, LSP Stock,
or a combination of both. Assuming an exchange ratio of
1.21, a Global Crossing shareholder will receive 1.00
Election Right for each Global Crossing share held and a
U S WEST shareholder will receive 1.21 Election Rights for
each U S WEST share held. Thus, each U S WEST shareholder
will receive Election Rights which entitle it to a package
of value (GSP Stock, LSP Stock, or a combination of both)
per U S WEST share held that is 1.21 times the package of
value (GSP Stock, LSP Stock, or a combination of both) per
Global Crossing share that each Global Crossing shareholder
will receive. Investment bankers will appraise the relative
values of the GSP Stock and the LSP Stock (see Question 15),
and, following the appraisal, each shareholder will choose the
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mix of LSP Stock and GSP Stock that he would like to receive.
Because the per share values of GSP Stock and LSP Stock may
be different, the merger agreement contains formulas which
are designed to ensure that each shareholder receives an
equal package of value per Election Right, whether he
selects all GSP Stock, all LSP Stock, or a combination of
both. The number of shares of GSP Stock and LSP Stock
ultimately issued to each shareholder will be subject to
pro ration if there is an oversubscription for either GSP
Stock or LSP Stock (see Exhibits 4-6 for examples).
12. How will the Frontier/Global Crossing collar impact the
exchange ratio? The exchange ratio for the Global
Crossing/U S WEST merger cannot be fixed until the number
of shares that Global Crossing will be required to issue to
Frontier shareholders can be determined. Global Crossing's
acquisition of Frontier was structured with a "collar" on
Global Crossing's share price. The collar requires that
the number of shares Global Crossing issues to Frontier
will decrease if Global Crossing's share price appreciates
(up to $56.78) and increase if Global Crossing's share
price declines (down to $34.56). The Frontier "collar"
mechanism provides U S WEST shareholders with a degree of
downside protection since the Global Crossing/U S WEST
exchange ratio will increase, thus producing additional
Election Rights for U S WEST shareholders, to the extent
that Global Crossing issues more shares pursuant to the
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Frontier collar. Assuming the minimum number of Global
Crossing shares are issued in the Frontier merger, the U S
WEST exchange ratio would be approximately 1.21. Assuming
the maximum number of Global Crossing shares are issued in
the Frontier merger, the U S WEST exchange ratio would be
approximately 1.46. (See Exhibit 7).
Tracking Stock Mechanics
13. What is Tracking Stock? Tracking stock provides its
holders with the benefit of earnings and dividends (if any)
generated by the business that the stock tracks. The
holders of LSP Stock will benefit from the earnings and
dividends generated by the LSP business, and the holders of
GSP Stock will benefit from the earnings and dividends
generated by the GSP business.
14. Why was a structure incorporating tracking stock used? The
tracking stock structure was designed to provide distinct,
attractive investment choices tailored to different
shareholders. Through the election mechanism, current U S
WEST and Global Crossing shareholders may elect to allocate
their interests between GSP Stock and LSP Stock in a
tax-free manner.
15. Explain the appraisal process. The purpose of the
appraisal process is to ensure that each shareholder
receives the same value per Election Right, whether such
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shareholder elects all GSP Stock, all LSP Stock, or a
combination of both. Because the per share value of GSP
Stock and LSP Stock may be different the merger agreement
contains formulas which are designed to achieve this
objective. These formulas require a determination of the
value of GSP relative to the value of LSP
(the "GSP to LSP Value Ratio"). In order to
determine the GSP to LSP Value Ratio, an appraisal of the
businesses underlying GSP Stock and LSP Stock must be conducted
since the GSP Stock and LSP Stock will not yet have begun
to trade. The appraisal process requires each of U S WEST
and Global Crossing to retain an investment bank to
determine the relative values of GSP and LSP which will
then be used to calculate the GSP to LSP Value Ratio. If
the two investment banks' estimates are different by more
than 10% (measured against the lower estimate), a third
investment bank will be retained to provide an estimate.
The GSP to LSP Value Ratio will be the average of the third
investment bank's estimate and the closer of the original
two estimates to the third, provided that the ratio will be
no greater than the higher original estimate and no less
than the lower original estimate.
16. What are the components of the 2 tracking stocks? How will
transfer pricing for transactions between GSP and LSP
work? LSP Stock will track all of the local
exchange businesses, including private lines and in-region
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long distance, plus the print Yellow and White Pages
directories of the combined company. The GSP Stock will
track the new company's undersea and terrestrial fiber
optic networks, frame relay and ATM networks, CLEC, DLEC,
digital subscriber lines (DSL), wireless operations,
Internet Yellow Pages, applications hosting and Internet
data distribution business. We currently anticipate that
GSP will provide compensation to LSP through fees for
local network access, sales, commissions,
installation, billing, customer service and repair charges.
It is also intended that LSP will receive a transitional
licensing fee, estimated to begin at 3% of the portion of
GSP revenue earned within the U S WEST service territory.
Generally, transactions entered into between the groups
following the merger will be at an arm's length basis. To
the extent applicable, regulated pricing will apply to
transactions between the two entities.
17. Will the tracking stocks trade on a "when-issued" basis so
that investors can see the relative values of the shares
following the appraisal process? If there is significant
demand, the relevant exchanges may provide for when-issued
trading.
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LSP Group
18. Discuss growth opportunities for LSP. We believe that the
following will be drivers of growth at LSP:
- The strong growth characteristics of U S WEST's
service territory, which encompasses six of the ten
fastest growing states in the country (Arizona,
Colorado, Idaho, Oregon, Utah and Washington),
- The receipt of payments from GSP to LSP for services
such as local network access, sales,
commissions, installation, billing, customer
service, and repair which will be incremental
revenues to LSP and which are growing significantly
faster than LSP's core business,
- Increased penetration of existing and new vertical
features, and
- The introduction of interLATA long distance services
upon receiving Section 271 approval.
As a result of the merger, we believe there are additional factors that
may enhance LSP's growth rate, including:
- Additional revenues and profits as a result of the
ability for the combined company to more effectively
compete for customers by selling an enhanced suite
of voice and data products,
- Additional sales generated by the combined company's
expanded distribution capabilities,
- Cost reductions from the combination of certain
administrative and other functions, and
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- The receipt of licensing fees from GSP for the use
of brand name, customer goodwill and enhanced
product integration capabilities.
19. How will the removal of !NTERPRISE and wireless impact the
long-term opportunities of LSP? While the revenue, cash
flow, and earnings of !NTERPRISE will now directly benefit
GSP shareholders, we believe that LSP will also benefit
through its relationship with !NTERPRISE/GSP. GSP will be
able to accelerate the roll-out of !NTERPRISE's services
nationally and internationally. LSP will benefit directly
from the rapid expected growth of GSP through providing
services such as local network access, sales,
commissions, installation, billing, customer service and
repairs, as well as licensing fees for use of the brand
name. Finally, we believe that LSP's service offering to
business and residential customers will be enhanced, as a
result of the stronger suite of products it is able to
offer.
GSP Group
20. Discuss GSP growth expectations and competitive
environment. We believe that GSP, which combines the
domestic and global fiber optic networks, data services,
Web hosting, wireless and CLEC businesses of U S WEST,
Global Crossing and Frontier, will grow more quickly than
any of the companies could have on their own. We expect
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that GSP will be uniquely positioned to take advantage of
dramatic global growth in data, Internet, wireless and
international traffic. GSP's planned network of 2.85
million fiber miles will carry traffic around the globe to
185 cities, including the major markets of the U.S.,
Europe, and Japan. This state-of the-art network is being
designed as the world's first seamless global data oriented
backbone and will provide unparalleled support for
advanced data services. The GSP network is specifically
configured to carry ATM, frame relay, and IP traffic,
making the new Global Crossing a global, one-stop provider
for video, data and Internet services. After the Global
Crossing/U S WEST merger closes, GSP intends to expand the
operations of the individual businesses which comprise it.
For example, GSP expects to aggressively pursue a national
DSL strategy to take advantage of U S WEST's DSL capabilities
and expects to expand its data center business both
domestically and internationally to unite the web hosting
expertise of GlobalCenter with the applications hosting
know-how of U S WEST and the global network of Global
Crossing/Frontier. GSP intends to deliver growth by using
its state-of-the-art global network and data skills to
increase its presence as a global provider of integrated
data and voice transport, connectivity and high value-added
services to its customers. Moreover, as a global operator,
GSP can introduce the web hosting, applications and local
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data connectivity to its European, Japanese and South
American locations.
21. Explain the !NTERPRISE business of U S WEST. Why is it
being included in GSP? !NTERPRISE is a U S WEST division
that provides high-speed data communications and network
services to consumers and businesses inside and outside of
U S WEST's 14 state region. Products offered include U S
WEST.net (Internet access), MegaBit (high speed Internet
access using DSL technology), ATM and frame relay services,
network integration solutions and data applications. The
!NTERPRISE assets, combined with GSP's domestic and global
transport, connectivity and data assets from Global
Crossing/Frontier, will allow the combined company to offer
advanced data products and services competitively on a
national and international basis. The following table
highlights the capabilities of GSP which will be a
combination of assets from U S WEST, Frontier and Global
Crossing:
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GSP Assets Selected Comparables
115,000 planned route miles of fiber Qwest (a) 29,315
Level 3 (b) 19,500
12 Web hosting/data centers Exodus (c) 9
AboveNet (d) 2
35,000 DSL customers Covad 8,600
NorthPoint (e) 3,600
Rhythms
NetConnections 1,235
>200,000 ISP subscribers MindSpring 1,157,000
EarthLink Networks 1,155,000
Prodigy 586,000
@Home 460,000
FlashNet 190,567
Internet America 79,000
220,000 PCS subscribers (f) Sprint PCS 3,350,000
OmniPoint 478,000
Powertel 338,000
Aerial 330,000
GSP will also have 230,000 CLEC access lines, 173 ATM switches, and 454
frame relay switches with over 70,000 frame relay nodes.
Note: Data as of 3/31/99. Source: Company press releases.
(a) Planned route miles include KPNQwest JV and exclude
purchased undersea capacity.
(b) Planned route miles exclude announced undersea network.
(c) Includes server hosting facility in London.
(d) Excludes Network Operation Center (NOC).
(e) Source: Company Prospectus dated May 6, 1999.
(f) GSP's PCS licenses are 10 MHz bandwidth.
!NTERPRISE is an excellent fit with GSP from an operating, strategic,
investment, and growth perspective.
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Transaction Timing and Regulatory Approval
22. Discuss overall transaction timing and expected timing of
key events (proxy, shareholder vote, appraisal,
distribution of LSP Stock and GSP Stock, etc.). The merger
is expected to close in mid-2000. We are in the process of
preparing proxy statements and regulatory filings. Based
upon advice from regulatory counsel, we believe that all
necessary regulatory approvals will be obtained by
mid-2000. Global Crossing believes that the Frontier
merger will close during the fall of 1999. After
completion of the Frontier merger, and after the SEC has
reviewed proxy statements relating to the U S WEST / Global
Crossing merger, the companies will hold shareholder
meetings to approve the transaction. The appraisal process
will begin approximately 60 days prior to closing and is
expected to require between two and four weeks to complete.
Approximately 30 days prior to closing, shareholders will
be mailed their election forms to select what percentage of
GSP Stock and LSP Stock they would prefer in the combined
company, subject to pro ration. At closing, LSP Stock and
GSP Stock will be distributed. We intend to notify
shareholders of progress towards closing through press
releases and/or SEC filings.
23. Provide an assessment of the state and federal regulatory
approvals for the transaction. Discuss the in-region
competitive environment and current Section 271 status.
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The merger is subject to regulatory approval. Based upon
advice from regulatory counsel, we believe that the
transaction should not raise significant regulatory issues.
U S WEST has aggressive plans to obtain Section 271
approval in all of its 14 states (granting it the ability
to originate long-distance service in-region) and is
hopeful of long distance relief through the Section 271
process, or otherwise, within a time frame that will enable
it to take advantage of the many opportunities created by
the merger. If long distance relief has not been obtained
at the time of closing, we will take measures to ensure
that the transaction can close consistent with all legal
requirements, including Section 271.
Financial
24. Is this transaction just providing Global Crossing access
to U S WEST's balance sheet? Global Crossing currently
enjoys significant access to both the debt and equity
markets. It is worth noting that all of Global Crossing's
current projects (including AC-1, PC-1, MAC, PAC, PEC and
GAL) are already fully financed.
25. What is the impact of purchase accounting from the Frontier
/ Global Crossing and Global Crossing / U S WEST mergers on
reported results of LSP and GSP? It is a condition to
closing that U S WEST be the accounting acquiror. Under
purchase accounting rules, the net book value of Global
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Crossing's assets will be increased to reflect their fair
market value. Goodwill created in the merger will be
allocated between the assets remaining at GSP from Global
Crossing and the assets allocated to LSP by Global
Crossing. It is expected that the large majority of the
goodwill created in the transaction will be allocated to
the assets of GSP.
U S WEST
26. What dividends will U S WEST be paying from announcement to
closing? U S WEST intends to pay a quarterly special
dividend of $0.215 per share for a total quarterly dividend
of $0.75 per share, beginning August 2, 1999. In addition,
the last U S WEST quarterly dividend will be paid
proportionately. The quarterly special dividend increases
U S WEST's aggregate dividends paid to those anticipated to
be paid by LSP. Pursuant to the merger agreement, U S WEST
intends to pay a $1.00 per share special cash dividend
immediately prior to the closing of the Global Crossing /
U S WEST merger.
Frontier
27. Discuss the impact of this transaction on the Frontier
transaction. The Global Crossing merger with U S WEST
should not impact the Frontier acquisition. We
believe that Frontier's U.S. fiber optic network can be
used to carry traffic generated by 17
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million local access lines (post-Section 271 and other long
distance approval). Applying the DSL, applications hosting
and other data capabilities of U S WEST to segments of
Frontier's business (such as GlobalCenter) will also
enhance the growth prospects of the combined businesses.
28. Explain the modifications to the Frontier collar. Global
Crossing agreed to amend its purchase price for Frontier
from $62.00 per share to $63.00 per share if the average
price for Global Crossing during the pricing period is
within a range of $34.56 to $56.78 per share. As a result,
the exchange ratio at the bottom of the collar is increased
from 1.0919x to 1.1095x, and the exchange ratio at the top
of the collar is increased from 1.7939x to 1.8229x. We
currently expect that the Global Crossing/Frontier
acquisition will close in the fall of 1999. To the extent
the Frontier closing extends beyond December 31, 1999 and
Global Crossing is trading within the collar, Global
Crossing has agreed to increase the consideration paid in
stock to Frontier by 7% per year (compounded daily).
Global Crossing
29. How will this combination affect Global Crossing's growth?
Global Crossing believes that GSP has a projected growth
rate that is higher than Global Crossing when combined with
Frontier. GSP will essentially combine Global Crossing and
Frontier's current network, data and wireless businesses
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with the rapidly growing data and wireless businesses of
U S WEST.
30. Global Crossing has evolved considerably since its IPO nine
months ago; What are some of the important events which
have impacted the company? By the end of the year 2000,
Global Crossing will have invested approximately $4.5
billion in a state-of-the-art subsea and terrestrial
network serving a very profitable sector of the telecom
market. In addition to delivering strong financial
results, including the recognition of more than $600
million of revenue since commencing commercial operations
and a backlog of signed sales contracts in excess of $1 billion
at the end of 1998, Global Crossing has achieved several
value-enhancing milestones including (i) the development of
Pan European Crossing, an $850 million terrestrial network
connecting 24 cities in Europe to the Global Crossing
network, (ii) the development of Global Access Limited, a
terrestrial fiber network in Japan being developed jointly
with Marubeni, (iii) the appointment of Robert Annunziata
as CEO, (iv) the development of South American Crossing, a
$1.1 billion subsea and terrestrial network connecting six
South American countries to the Global Crossing network,
(v) the announcement of AC-2, a $750 million 2.5
Terabit-per-second fiber optic cable to provide additional
capacity in the transatlantic market where demand has
dramatically exceeded market forecasts of only one year
-23-
<PAGE>
ago, (vi) the announced acquisition of Frontier and (vii)
the announced acquisition of Global Marine from Cable &
Wireless plc.
-24-
<PAGE>
Exhibit 1
Sequence of Events<F1>
1. Agreement to acquire Frontier Corporation by Global Crossing
announced (March 17, 1999)
2. Merger of Global Crossing with U S WEST announced (May 17,
1999)
3. 39,295,305 Global Crossing shares acquired by U S WEST
pursuant to tender offer (estimated late June, 1999)
4. Exchange ratio for Global Crossing/Frontier merger set
based on the average volume-weighted averages of the
trading prices of Global Crossing Common Stock for the 15
trading days selected randomly from the 30 consecutive trading
days preceding the date at which closing conditions are satisfied
(estimated Fall, 1999)
5. Receipt of Global Crossing/Frontier regulatory clearance.
Global Crossing/Frontier merger closes; Global Crossing
issues between approximately 201.5 million and 331.1
million shares to Frontier shareholders depending on the
Global Crossing stock price during the pricing period
(estimated Fall, 1999)
6. The exchange ratio in the Global Crossing / U S WEST merger
will be fixed to ensure that U S WEST shareholders and
Global Crossing shareholders (including the former Frontier
shareholders) will each have approximately 50% ownership in
the combined entity
7. Shareholder votes by Global Crossing and U S WEST
shareholders (estimated mid-2000)
8. Approximately 60 days prior to closing of the Global
Crossing / U S WEST merger, an appraisal process to determine the
value of GSP relative to LSP will be
commenced; the components of GSP and LSP are explained in
the Investor Q&A (estimated mid-2000)
9. Approximately 30 days prior to closing of the Global
Crossing / U S WEST merger, shareholders of Global Crossing
and U S WEST will be mailed forms to elect how they would
like to allocate the value of their holdings between GSP
Stock and LSP Stock; proration adjustment if necessary
(estimated mid-2000)
10. Receipt of Global Crossing/U S WEST regulatory clearance
(estimated mid-2000)
11. Global Crossing/U S WEST merger closed (estimated mid-2000)
__________________
<F1> Assumes, among other things, that the Global Crossing stock price remains
within the Frontier collar for purposes of determining the Frontier
exchange ratio and that all necessary regulatory approvals for the
merger are obtained in a timely manner.
-25-
<PAGE>
Exhibit 2
Fact Sheet
- -- Exchange Ratio: -- 1.00 Election Right per Global
Crossing share
-- 1.21 Election Rights per U S WEST
share (assuming the minimum number
of Global Crossing shares are
issued in the Frontier merger)
-- Exchange ratio subject to
adjustment for the number of
shares of Global Crossing stock
issued in the Frontier merger (see
Exhibit 7)
-- U S WEST shareholders to have
approximately 50% ownership at
closing
- -- Implied Price to USW: -- Based on an Exchange Ratio of 1.21
and a $60.00 Global Crossing
closing stock price on 5/13/99:
$72.60
-- Plus: Indicated Special
Dividends: $1.00 at closing plus
$0.215/quarter
-- Total: $73.60 plus $0.215/quarter
- -- Management: -- Sol Trujillo and Bob Annunziata to
be Co-CEOs
- -- Board: -- Equal board representation (10
each) plus 2 newly appointed
directors
- -- Tracking Stock: -- Shareholders may elect to receive
their consideration in GSP Stock,
LSP Stock or a combination of both
(see Exhibits 3-4)
-- The tracking stock election is
subject to pro ration (see Exhibits
5-6)
- -- Interim U S WEST
Dividend Policy: -- $0.215 per share special quarterly
dividend and $0.75 per share total
-26-
<PAGE>
quarterly dividend prior to
closing ($3.00 annualized)
-- $1.00 special per share dividend
at closing to U S WEST
shareholders
-27-
<PAGE>
- -- Anticipated Closing: -- Mid 2000, subject to completion of
regulatory review
- -- Headquarters: -- New York, New York with
significant operations in Denver,
Rochester and Los Angeles
- -- Anticipated Accounting: -- Purchase accounting with U S WEST
as accounting acquiror
- -- Tender offer: -- As a first step of combination,
U S WEST to purchase 39,295,305
Global Crossing shares
(approximately 9.5%) at $62.75
(approximately $2.5 billion)
-- Intention to enter into commercial
agreements to provide incremental
revenue and profits prior to
closing
- -- Conditions to Closing of
Merger: -- Closing of Global
Crossing/Frontier merger
-- U S WEST as accounting acquiror
-- Regulatory and other customary
conditions
-28-
<PAGE>
Exhibit 3
Two Tracking Stocks
Global Service Provider (GSP) Local Service Provider (LSP)
GSP Stock LSP Stock
- -- Global Crossing subsea and -- U S WEST local exchange
terrestrial global fiber
network
- -- U S WEST !NTERPRISE data -- U S WEST in-region long
activities distance and future
inter-LATA long distance
(after Section 271
approval)
- -- Frontier U.S. Fiber -- U S WEST private lines
network, Internet, data
and long distance
- -- Frontier CLEC operation -- Frontier local exchange
and associated long
distance
- -- U S WEST wireless and -- U S WEST and Frontier
Internet Yellow Pages directory publishing
operations
- -- U S WEST video services
- -- Global Marine
-29-
<PAGE>
Exhibit 4
Example Tracking Stock Mechanics
Step 1: Appraisal
- - The relative values of GSP and LSP are determined by appraisal in
order to calculate the GSP to LSP Value Ratio.
Step 2: Calculation of Shares per Election Right:
- - Simple formulas determine the maximum number of shares of
GSP or LSP that will be received per Election Right,
subject to pro ration, by each U S WEST and Global Crossing
shareholder.
Example: GSP is determined to have value 25% greater than LSP
resulting in a GSP to LSP Value Ratio of 1.25.
GSP = 1+ GSP to LSP Value Ratio = 1 + 1.25 = 1.80
------------------------- --------
GSP to LSP Value Ratio 1.25
LSP = 1+ GSP to LSP Value Ratio = 1 + 1.25 = 2.25
In this example, each Election Right may be exercised for either
1.80 GSP shares or 2.25 LSP shares.
Step 3: Shareholder Elections
- - Global Crossing and U S WEST shareholders elect the mix of
GSP Stock and LSP Stock they wish to receive.
Example: A U S WEST shareholder who owns 100 U S WEST
shares elects to receive 50% of value in GSP Stock and 50%
of value in LSP Stock. A U S WEST shareholder is assumed to
receive 1.2114 Election Rights per U S WEST share.
GSP Shares Elected = U S WEST x Exchange % GSP GSP
Shares Ratio x Elected x Shares
Per
Election
= 100.0 x 1.2114 x 50% x 1.80
= 109.0 (cash for fractional shares)
-30-
<PAGE>
LSP Shares Elected = U S WEST x Exchange % LSP LSP
Shares Ratio x Elected x Shares
Per
Election
= 100.0 x 1.2114 x 50% x 2.25
= 136.3 (cash for fractional shares)
-31-
<PAGE>
Exhibit 5
Example Tracking Stock Mechanics - LSP Oversubscription Case
LSP shares are assumed to be oversubscribed by 20%
GSP to LSP Value Ratio is assumed to be 1.25
If LSP shares are oversubscribed, the following steps will occur:
Step 1: GSP Elections Granted
- - In this example, each shareholder who elects GSP shares will
receive the GSP shares he or she elects. Example: The U S WEST
shareholder's 50% GSP election is granted: 109.0 (cash for
fractional shares) GSP shares
Step 2: LSP Elections Pro Rated
- - In this example, pro ration results in LSP shares elected being
only partially granted
Example: The U S WEST shareholder's 50% LSP election is
pro rated
LSP Shares Received = LSP Shares Elected x Aggregate LSP Shares
--------------------
Aggregate LSP Share
Elections
= 136.3 x 100%
(cash for fractional ----
shares) 120%
= 113.6
(cash for fractional
shares)
Step 3: Additional GSP Shares Allocated
- - Pro ration results in additional GSP shares being allocated
to shareholders who elected LSP shares. Because the value
per share of LSP and GSP is not equal in this example, the
following formula is designed to calculate the equivalent number
of GSP shares required to compensate a shareholder for the pro
ration.
In this example, the U S WEST shareholder receives additional GSP
shares in lieu of some of the oversubscribed LSP shares.
-32-
<PAGE>
Additional GSP Shares Received = Shares of LSP Elected - Shares of LSP
Received GSP to LSP Value Ratio
= 136.3 - 113.6
-------------
1.25
= 18.2
(cash for fractional shares)
-33-
<PAGE>
Exhibit 6
Example Tracking Stock Mechanics - GSP Oversubscription Case
GSP shares are assumed to be oversubscribed by 10%
GSP to LSP Value Ratio is assumed to be 1.25
If GSP shares are oversubscribed, the following steps will occur:
Step 1: LSP Elections Granted
- - In this example, each shareholder who elects LSP shares will
receive the LSP shares he or she elects.
Example: The U S WEST shareholder's 50% LSP Election is
granted: 136.3 (cash for fractional shares) LSP shares
Step 2: GSP Elections Pro Rated
- - In this example, pro ration results in GSP shares elected being
only partially granted.
Example: The U S WEST shareholder's 50% GSP election is
pro rated
GSP Shares Received = GSP Shares Aggregate GSP Shares
Elected x --------------------
Aggregate GSP Share
Elections
= 109.0 x 100%
----
110%
= 99.1
Step 3: Additional LSP Shares Allocated
- - Pro ration results in additional LSP shares being allocated
to shareholders who elected GSP shares. Because the value
per shares of LSP and GSP is not equal in this example, the
following formula is designed to calculate the equivalent number
of LSP shares required to compensate a shareholder for the pro
ration.
In this example, the U S WEST shareholder receives additional LSP
shares in lieu of some of the oversubscribed GSP shares.
Additional LSP Shares GSP to LSP Value Ratio x (Shares of GSP Elected -
Received = Shares of GSP Received)
= 1.25 x (109.0-99.1)
= 12.4
-34-
<PAGE>
Exhibit 7
Illustrative Exchange Ratio Sensitivity to Frontier/Global Crossing
Collar
(Dollars and Shares in Millions, Except per Share Data)
Global Crossing/Frontier
Exchange Ratio
At Bottom At Top
of Collar of Collar
1.8229x 1.1095x
Global Crossing Share Price $34.56 $56.78
Estimated Frontier Diluted Shares at closing 181.6 181.6
of Frontier merger (a)
Global Crossing Pre-Frontier Diluted Shares 457.8 457.8
Estimated Global Crossing Shares Issued for 331.1 201.5
Frontier (a)
Global Crossing Post-Frontier Diluted Shares 788.9 659.4
Global Crossing Shares Purchased by U S WEST (39.3) (39.3)
in Tender
Estimated Global Crossing Post-Tender-Shares 749.7 620.1
U S WEST Diluted Shares 511.9 511.9
Implied Global Crossing/U S WEST Exchange 1.4646x 1.2114x
Ratio
Implied Per Share Value to U S WEST $50.62 $68.79
Number of Election Rights per U S WEST share 1.4646 1.2114
Number of Election Rights per Global 1.0000 1.0000
Crossing share
-35-
<PAGE>
(a) The actual number of Global Crossing shares issued in
connection with the Frontier merger will also depend on the
actual number of Frontier shares outstanding at the time of
the closing of the Frontier merger.
-36-
<PAGE>
U S WEST Safe Harbor Statement: This document contains statements about
expected future events and financial results that are forward-looking and
subject to risks and uncertainties. For these statements, we claim the safe
harbor for "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Factors that could cause actual
results to differ from expectations include: (i) greater than anticipated
competition from new entrants into the local exchange, intraLATA toll,
wireless, data and directories markets, causing loss of customers and increased
price competition; (ii) changes in demand for U S WEST's products and services,
including optional custom calling features; (iii) higher than anticipated
employee levels, capital expenditures and operating expenses (such as costs
associated with interconnection and year 2000 remediation); (iv) the loss of
significant customers; (v) pending and future state and federal regulatory
changes affecting the telecommunications industry, including changes that
could have an impact on the competitive environment in the local exchange
market; (vi) a change in economic conditions in the various markets served by
U S WEST's operations; (vii) higher than anticipated start-up costs associated
with new business opportunities; (viii) delays in U S WEST's ability to begin
offering interLATA long-distance services; (ix) consumer acceptance of broadband
services, including telephony, data and wireless services; and (x) delays in
the development of anticipated technologies, or the failure of such
technologies to perform according to expectations. These cautionary statements
by U S WEST should not be construed as exhaustive or as any admission regarding
the adequacy of disclosures made by U S WEST. U S WEST cannot always predict or
determine after the fact what factors would cause actual results to differ
materially from those indicated by the forward-looking statements or other
statements. In addition, readers are urged to consider statements that include
the terms "believes", "belief", "expects", "plans", "objectives", "ancitipates",
"intends", "targets", or the like to be uncertain and forward-looking. All
cautionary statements should be read as being applicable to all forward-looking
statements wherever they appear. U S WEST does not undertake any obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
-37-
