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Global Crossing makes its case for Frontier

Global Crossing, the Bermuda-based undersea fiber optic cable company, files a proxy statement with federal regulators today detailing its plans for acquiring Frontier.

Global Crossing executives, anxious to keep their prized takeover targets from defecting to another suitor, are stepping up their defense.

Global Crossing, the Bermuda-based undersea fiber optic cable company, which is in a bidding war with Qwest Communications International over US West and Frontier, filed a proxy statement with federal regulators today detailing its plans for acquiring Frontier.

With today's move, Global Crossing frees itself to begin talking to investors about the merits of its merger with Frontier and opens a new phase in the four-way bidding war. Over the last few weeks, Qwest has taken center stage by attracting both Frontier and US West to the negotiating table with sweeter financial offers, while federal regulations have prevented Global Crossing from discussing its merger plans in public.

"If this helps them articulate their strategy in the market, then that can only be a good thing," said Jeffrey Kagen, an independent telecommunications analyst based in Atlanta.

Global Crossing, like Qwest, is an upstart fiber optic carrier that to date has focused on the undersea cable business. Global Crossing, led by chief executive Robert Annunziata and cochairman Gary Winnick, has plans for three other undersea cables and two terrestrial fiber optic networks in Europe and Japan.

Both Global Crossing and Qwest are anxious to buy US West and Frontier to assemble a network that reaches individual consumers' homes and businesses and spans international markets.

Earlier today, Global Crossing also said its second-quarter revenue is expected to exceed Wall Street analysts' estimates when the company reports results later this month.

Together the announcements serve as an indication that the company is preparing for the next stage in the merger melodrama, which has unfolded since Global Crossing first bid on Frontier in March. The Global Crossing camp had been relatively quiet for weeks while Qwest upstaged it with its sweeter offer.

Global Crossing, which has seen its stock price fall significantly since announcing the takeover bids, said strong circuit activations will lead to increased revenue of about $190 million, although several one-time merger expenses will affect its operating results. Executives also said it has seen significant contract sales on new systems not yet in service.

The company's stock gained more than 6 percent to close at 42.875 today. Shares have traded as high as 64.25 and as low as 8 in the past 52 weeks.

Currency climbing
Global Crossing stock has fallen by nearly 20 percent since Qwest jumped into the fray. Analysts said today's announcement likely was timed to help boost Global Crossing shares at a critical time; the company badly needs strong currency for its merger fight.

"The announcement is clearly meant to reinforce the bullish case of Global Crossing at a time when people have been distracted [by the merger fight]," said Stuart Conrad, a Deutsche Bank securities analyst. "As people focus on the merger they lose sight of the fact that this is still a pretty exciting story historically."

Both Qwest and Global Crossing saw their stock prices plummet after revealing their acquisition plans for US West and Frontier. But Qwest's stock has rebounded slightly.

Coupled with a new, higher bid and statements by US West and Frontier that they would open negotiations with Qwest, some analysts and industry observers believe Qwest currently has the upper hand in the high-stakes battle.

Speaking out
Separately, Global Crossing's filing today with Securities and Exchange Commission allows the company to address Frontier investors and reveal its merger strategy, which analysts say could help the company gain investors' faith.

Investors and analysts had been waiting for Global Crossing to give them more information about its plans for Frontier as well as new information about its desire for US West.

"[Global Crossing] needs to show that they're committed to growth and that they'll make a better parent than Qwest," said Peter Nighswander, vice president for competitive telephony at Strategis Group, a telecommunications research firm. Today's announcements go a small step in that direction, he said, noting that Global Crossing has been relatively quiet because "they haven't wanted to turn this into a big shoot-out."

As a condition of its original agreements with Frontier and US West, Global Crossing will have the right to counteroffer if either company accepts a competing offer. Neither company has yet accepted Qwest's bids. While waiting for the two companies to make their move, Global Crossing's best strategy is to keep its stock price as high as possible and keep investors appraised of plans, analysts said.

"In the meantime, there's no need for them to do anything other than sit tight," said Tom Burnett, founder of New York-based research firm Merger Insight.