Qwest Keeps Its Long-Distance Unit
Qwest’s strategic review was marked by a gap between the company’s view of the unit and significantly lower bids.
June 8, 2009
Qwest Communications International Inc. has terminated its efforts to find a buyer for its long-haul network.
The Wall Street Journal reported that Level 3 Communications Inc. was expected to make an official bid. XO Holdings Inc. and TW Telecom Inc. were also reportedly interested in the company, though the preliminary bids were not high enough to motivate an asset sale.
In a statement, Qwest said there was “significant interest,” but the company will attempt to develop the unit independently. Qwest hoped to sell the long-haul business for $2 billion to $3 billion though bids were reportedly under $1 billion.
Private equity bidders have seen a significant gap between buyers’ and sellers’ expectations for much of the past year. The significant dichotomy between Qwest’s estimation of the long-haul unit's valuation and the bids that the telecom company received may indicate that a similiar pattern could soon play out among strategic buyers as well. In speaking with MergersUnleashed last week, Terry Theodore, a partner at Wynnchurch Capital, noted that a lack of buyers has created an environment where there is a greater divergence of valuations.
A Stifel Nicholaus analyst report obtained from ThomsonOne Analytics noted that Qwest would find it difficult to sell the unit for a price of about $1 billion, as the company already has $13.3 billion in debt. The analyst, Rebecca Arbogast, also noted that the long-distance business “has been marked by substantial competition.”
Last month, Frontier Communications bought Verizon Communications’ access lines in 14 states for about $8.6 billion in cash and stock, highlighting the strong interest the business line.
As of press time, Qwest stock traded at $13.24 per share.
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