US West threatens suit over Qwest-DT tryst
The telephone company demands information on rumored talks with Deutsche Telekom, saying it would hold Qwest responsible if the talks affected their $36 billion deal.
In a strongly worded letter sent to suitor Qwest Communications International today, US West's general counsel warned that his company would sue for potentially huge damages if Qwest tried to break up their pending merger.
The letter comes in response to speculation that Qwest is in talks to be acquired by Deutsche Telekom, as well as several printed comments attributed to Qwest chief Joseph Nacchio saying that ending the US West merger would be relatively easy to do.
"To the extent that US West is damaged by these activities, including any delay in regulatory merger approval, we will be forced to hold Qwest responsible," US West general counsel Mark Roellig said in the letter. "Any damages will in no way be limited by the breakup fee, but will be all actual and potentially punitive damages."
Qwest shares have skyrocketed this week on speculation that a Deutsche Telekom agreement might be in the works. US West shares fell sharply yesterday, but regained most of their value today.
A change of heart on the part of Qwest could mark an embarrassing--and expensive--turnaround for the young company, but would likely be a bitter blow to US West.
Qwest broke up another merger agreement between US West and Global Crossing last summer, when it initiated a last-minute bidding war for the Baby Bell's hand. After several rejected offers, Nacchio enticed US West into his camp, leaving Global Crossing with a breakup fee of $140 million, and an agreement by US West to return another $140 million in stock.
Since that time, US West's own shares have climbed steadily, even while other local phone company peers have seen sharp downward slides in their share prices.
The letter sheds some light on US West's frustration at being cut out of the information loop.
"We are extremely concerned that these discussions are ongoing with no information being provided to us," Roellig wrote. Any private talks between Qwest and Deutsche Telekom would violate the existing merger agreement, he added.
Breaching that merger agreement would be far more costly than the stated $800 million breakup fee, the Baby Bell added. Roellig cited an earlier merger squabble, in which a jury initially ordered Texaco to pay Pennzoil $10.5 billion for trying to break up a merger with Getty Oil. That case was eventually settled for $3 billion.
"Damages would very likely make the Pennzoil judgment pale in comparison," Rolleig wrote.
The merger has moved several steps closer to official completion this week. US West chief executive Sol Trujillo said on Tuesday that he would leave the company after the merger's close, citing differences of vision with Nacchio.
Qwest also announced a slate of new top executives for the post-merger company today.
In a public statement today, US West said that its commitment to the merger had not changed.
"US West today reiterated its full commitment to pursuing and closing its pending merger with Qwest Communications International, as required by the existing merger agreement, which has already been approved by shareholders of both companies," the company said. "It awaits regulatory approvals, which the company believes will be forthcoming."