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2HRS2GO: Hard to get a handle on USWest-Global Crossing

So when does BellSouth get married?

Just wondering, since every other Baby Bell now has hooked up with someone. Today's announcement of a merger between US West Inc. (NYSE: USW) and Global Crossing Ltd. (Nasdaq: GBLX) marks the latest conjugal union, following in the steps of SBC Communications (which bought Pacific Bell and plans to buy Ameritech) and Bell Atlantic (bought Nynex with plans for GTE).



USWest-Global Crossing merger: Makes sense?
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On the other hand, BellSouth Corp. (NYSE: BLS) may want to hold off, if today's market is any indication. Neither Global Crossing shareholders nor USWest investors care for the proposed deal, with GLBX down more than 3 percent and USW falling almost 8 percent. At least one analyst, Janney Montgomery Scott's Anna-Maria Kovacs, downgraded USWest to "hold" from "accumulate".

The negative reaction probably comes as no surprise to executives of either company, since the plan has as many twists as a yoga master. Shareholders have to digest a tender offer for 9.5 percent, followed by the creation of tracking stocks for the separate businesses. Although company executives pulled out a figure of $6 billion in cost savings over the next 10 years, even the deal's proponents downplay that number and prefer to point to a communications El Dorado forecast to be anywhere from $18 billion to $36 billion.

Global Crossing's Robert Annunziata and US West's Sol Trujillo -- leaders of their respective companies and planned co-CEOs of the new one -- tout the combined company's ability to extend the services that US West is rolling out, such as TV and high-speed Internet access. Global Crossing's network, which will include the assets of soon-to-be-acquired Frontier Communications, can carry digital Shangri-La to the rest of the world.

"It's time for a global service provider, which we (Global Crossing) have put together, and a local service provider, so we can keep that relationship with customers," Annunziata said, during this morning's press conference.

USWest wants to be fast-growth company, yet placate its longtime shareholders who invested in the company for the stability and dividends that utilities provide. The company hopes to achieve that dual purpose by issuing two tracking stocks, one for the local service business, the other for the rest.

But if the businesses are so disparate that shareholders will face the same number of stocks as before the merger, it begs the question: what do these two sides have in common? It's hard to see how a merger improves either business.

Some analysts have long viewed USWest as the weakest of the Baby Bells, yet it will be the surviving entity in this deal, according to Trujillo. Which may go to show how lightly regarded Global Crossing is; certainly its worldwide network, though it hits 19 countries and 185 cities, is not a titanic asset by any means, at least not yet.

If the goal is to extend USWest's data transmission services across the world, wouldn't it make more sense to join a larger partner, like Sprint or Qwest? And if Global Crossing truly is the best choice, why not just cut a joint venture that has Global Crossing reselling US West's service? That's practically what would happen with this merger anyway.

Merging with US West actually locks out a sizable market that Global Crossing otherwise might have competed in, since the regional Bell operating companies still aren't allowed to sell long distance service in their own territory. The Baby Bells keep saying they hope to convince the Federal Communications Commission otherwise, but it hasn't happened yet, and there's no reason to think Global Crossing will be any more persuasive than Bell Atlantic or SBC.

That's just a short term worry, since federal regulators will let it happen eventually. But piled onto a hard-to-decipher transaction between two vastly different sets of investors, resulting in shareholder voting rights that aren't clear at the moment, and it's no surprise that people are leery so far.

You have to wonder if all this merger mania isn't pushing telecom executives to go farther than they have to. Maybe BellSouth has it right; after all, being Really Big doesn't mean you'll be really good for shareholders.

Other issues:

  • Silknet Software Inc.
  • (Nasdaq: SILK) Maybe it's a delayed IPO reaction, but the provider of e-commerce software is shooting up today. It did recently announce that it landed Priceline.com as a client.

  • Adam.com
  • (Nasdaq: ADAM) Recently renamed from Adam Software, the thinly-traded stock -- today's volume has been just a bit more than 233,000 -- was up more than 2 points by mid-afternoon. Given the lack of any recent filings with the U.S. Securities and Exchange Commission and a complete lack of analyst coverage, you can only figure that someone picked up news from last week, when the company rolled out a new website for consumer health information, added some new management including a new president, and announced plans to buy a pediatric website.

    The rest of the market was down with two hours left in regular trading. The Nasdaq Composite Index had fallen 14.35 to 2513.51, the S&P 500 had slipped 10.12 to 1327.68, and the Dow Jones Industrial Average had declined 133.16 to 10780.16. 22GO>