In An About-face, Frontier To Discuss Merger Proposal With Qwest

Two days after warning that its second-quarter and fiscal- year profits would fall short of analysts' estimates, Frontier Corp. said today that its management will meet with Qwest Communications International to discuss Qwest's $12 billion hostile bid for the local and long-distance telephone company.

Today's announcement represents an about-face for Frontier, which previously had refused to meet with Qwest and was instead focused on its planned acquisition by undersea cable operator Global Crossing Ltd. Global Crossing's bid for Frontier is valued at about $11 billion.

In a press release issued today, Frontier said its merger agreement with Global Crossing "remains in full force and effect" and that the decision to meet with Qwest's management "in no way reflects a change in the Frontier board's current approval and recommendation of the Global Crossing merger agreement."

However, Frontier's board also said Qwest's revised offer for Frontier "could reasonably be expected to constitute a superior proposal."

Qwest, for its part, said its offer for Frontier remains unchanged, even though Frontier announced two days ago that its fiscal-year earnings will be about 17% lower than analysts had previously expected because of price declines in its traditional long-distance business and the loss of a wholesale customer in the United Kingdom.

"Some might feel that the value of Frontier has gone down in light of their announcement," Qwest spokesman Tyler Gronbach says. "We, however, are about long-term growth. We still see significant value in Frontier's Web hosting and IP communications businesses, in the 13,000 miles of fiber- optic cable we put into the ground for them, and in having a competitive local exchange carrier with a northeastern footprint."

"Given what we know from information out there in the public, we still think it is a good offer we have made, and that is why the Frontier board is now willing to talk to us," Gronbach said.

While Frontier is trying to shift away from traditional switched long distance and toward the deployment of IP platforms, including voice-over-IP, about 90% of the company's revenues came from traditional local and long- distance voice service last year.

Breaking up their planned acquisitions by Global Crossing could be expensive for both Frontier and US West, which is also an acquisition target by Global Crossing and Qwest. US West would owe Global Crossing $850 million in break-up fees and service costs if it terminated its merger deal, while Frontier would owe a break-up fee of $270 million.