Qwest, US West trade jabs as merger goes forward

Asked how he felt about US West chief executive Sol Trujillo leaving the joint company after their planned merger, Nacchio said he was "euphoric," according to several people at the conference. "If I wasn't so busy, I'd have gone to Disneyland," he said.

The comment capped a bitter week in which the radically different personality styles and corporate visions of the two chief executives exploded into the public eye.

The two companies--Qwest and US West--were once involved in an amicable $50 billion merger, announced last year, that was viewed as a combination of an established, slow-moving telecommunications company (US West) and an Internet-driven upstart (Qwest). But since that time it has become clear that the two personalities driving these companies are not getting along.

Nacchio blamed Trujillo and the US West management team for torpedoing a larger merger with an officially unnamed telephone giant, widely assumed to be Deutsche Telekom. US West went into its bunker, gritting its teeth through the tongue-lashing while saying it was still committed to its previously planned merger with Qwest.

The personal styles of the two chief executives--one brash and aggressive, the other quietly strategic--are perfect metaphors for the companies themselves. And that's just the problem, say some analysts who are looking at the recent feud as new evidence that the two companies will have a tough time fitting together.

"There's a lot of bad blood between those two people," said Elliot Hamilton, director of U.S. telecommunications consulting at the Strategis Group. "This doesn't bode well for the integration of the two companies."

Both executives cut their teeth at the old AT&T, where they learned the tricks of the telecom trade. But their experiences proved to be very different.

In the course of his 25-year career at Ma Bell, the shoot-from-the-hip Nacchio climbed to AT&T's No. 3 slot, running the company's consumer and business long-distance divisions. By 1996 he appeared to be a possible candidate for the company's top job, but lost an internal struggle as the board looked outside the firm for a successor.

That was enough for Nacchio, who long said he was chafing under AT&T's bureaucratic mold. In 1997 he jumped at a chance offered by investor Philip Anschutz to take the helm of upstart Qwest. He has since built the company, worth about $1 billion when he bolted AT&T, into a $40 billion concern. In public speeches he jokes about the bad old days at AT&T, giving a running count of the time since he left the company.

Trujillo, one of the highest-ranking Latinos in the U.S. corporate world, started from much more unlikely roots. Born in Cheyenne, Wyo., he worked his way through business school as a dishwasher and trumpet player in a mariachi band. He joined AT&T in 1974, worked his way though the ranks as US West split in 1984, and finally took the helm of the smallest Baby Bell in 1998.

In person Trujillo is much more contemplative than Nacchio, listening and holding his fire even when criticized. He's led the company ahead of its peers in developing new technologies, but has kept the company on thin ice with state regulators, many of whom have said US West hasn't kept pace with investments in its traditional phone business.

"Anybody's style is a little more measured than Nacchio," Timothy Horan, a financial analyst with CIBC World Markets, said. "But you can't do much quickly when you have to deal with regulators and unions and live with legacy systems."

In the seven months since their merger was announced, the two personalities have proved to be as compatible as oil and water--a problem given their initial plan to take "co-chairman" roles in the new company.

Two weeks ago, Trujillo said he'd had enough, and told staffers he wouldn't join them in the post-merger Qwest.

"Even though we have agreed on a wide range of issues, we have not found agreement on key strategic issues," he wrote in a memo to employees announcing he would leave when the merger had closed. "Accordingly, I have decided to accommodate the views of my counterpart so that he can shape...the new Qwest by his values and priorities."

Over the last few weeks these strategic disagreements have had their most public forum yet. Qwest took the lead in negotiating a possible new merger, and US West threatened to sue if it wasn't brought into the loop. When it was informed of the possible deal, it balked, scaring away the buyer, Nacchio said last week.

That experience poisoned the relationship even further, and based on Nacchio's response, Trujillo won't be the only US West manager without a future in the company.

"We have a good relationship with the operating people of US West," Nacchio told reporters on a conference call last week. "When you get below the policy level I think the companies can work together."

Even if that's true, the uncertainty spawned by the feud has shaken the market.

Qwest's stock has dropped close to 15 points since the highs of the recent merger discussions. US West has also fallen sharply in the last several days.

Analysts are looking at the companies' joint effort, and even the completion of the merger itself, as an increasingly steep hill to climb--made more so, perhaps, by Nacchio's recent comments.

"If you're at US West, you're not exactly getting a warm welcome," Hamilton said.