US West merger may veer to Wall Street
The $37 billion deal between telcos US West and Global Crossing may bear an unexpected gift for the Internet, analysts say.
As a part of the merger announced today, the two companies are setting up a pair of so-called tracking stocks, throwing their stable but low-growth business behind one set of shares and their riskier Internet and long distance businesses behind another.
That's a perfect model for marrying old media companies with stagnant stock prices and high-flying Internet businesses, analysts said. If the Global Crossing stocks prove successful, it could prompt a new series of Internet buyouts by old media companies worried about mingling their stock with overvalued Net concerns.
"This could be a landmark deal in that respect," said Robert Harden, a principal at Silicon Valley Capital Management. "There are many potential suitors for Internet asset companies whose shareholders are concerned about paying the amount of money needed for Internet valuations."
Separating a newly merged company along Internet and old media lines could relieve much of these would-be Net investors' fears, Harden said.
Global Crossing and US West executives said they had created the double stock to soothe shareholder concerns about incompatible stocks, as well as to give the slow-growth shares a new boost of energy.
"We've created a financial structure that will allow us to unlock some of the trapped value in US West," chief executive Sol Trujillo told reporters today.
This idea of splitting a company along low-growth and high-growth lines has gained currency in some circles but has yet to be done successfully on the scale of today's Global Crossing deal.
Recently, technology publishing house Ziff-Davis spun off a tracking stock for its ZDNN Internet sites. Microsoft is reportedly considering a spin-off of its Internet businesses, and brokerage Donaldson, Lufkin & Jenrette has said it would soon issue a new tracking stock for its online DLJ Direct business.
NBC's recent acquisition of Xoom.com and its plans to fold that company into a separate NBCi unit along with the Snap Web directory may be the closest example yet of the merge-and-split model, said Bank of America Securities associate Barbara Coffey. (CNET, publisher of News.com, owns 40 percent of Snap.)
"I expect more people to start to look at [this model] as they seek to capture and monetize the value of their assets," Coffey said.
The merger between US West and Global Crossing still must be approved by regulators and is not expected to close until mid-2000.