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Rumored Qwest deal dies

Qwest Communications International ends talks with a "major telecommunications company," rumored to be Deutsche Telekom, because of the demands of current merger partner US West.

Qwest Communications International said it has ended talks with a "major telecommunications company," rumored to be Deutsche Telekom, because of the demands of current merger partner US West.

In a strongly worded statement released late today, Qwest chief executive Joe Nacchio fingered US West, the company Qwest is currently in the midst of a merger with, for torpedoing a possible merger with what the company called a "major telecommunications company." In the statement, Qwest noted that the interested party has withdrawn from the discussions.

Rumors surrounding a possible Qwest, US West and Deutsche Telekom combination are now in their second week. It remains unclear whether the latest developments signal a true end to the discussions or the latest negotiating tactic to get all parties to agree to terms.

Pointing to US West's position, released in a statement earlier this afternoon, Nacchio said: "We regret that US West apparently wouldn't even consider an alternative transaction involving a major telecommunications company and Qwest despite the possibility of greater value for US West shareholders."

US West said it "remained committed" to the company's current plan to merge with Qwest in a $35 billion deal, the result of a bidding war last summer won by Qwest over competitor Global Crossing.

But the company also said it would consider an additional move only if it benefited all shareholders of the combined Qwest and did not jeopardize the completion of the current deal with that firm. "Moreover, any subsequent business combination must also be better than or consistent with our existing transaction with Qwest," US West said in a statement.

Those requirements could have posed significant hurdles for the "major telecommunications company." That company may have also balked at the price Qwest is prepared to pay for US West, or at the period of time the company might have to wait before Qwest's deal with US West closes. Insiders suggest the US West-Qwest deal, if it closes, may not be finalized for at least four months.

The end of these discussions may not be the last the industry hears of a potential Deutsche Telekom-Qwest marriage. After all, Qwest's acquisition of US West followed a lengthy and dramatic bidding war vs. communications rival Global Crossing over both US West and Frontier Communications. Ultimately Global Crossing acquired Frontier while Qwest claimed the smallest Baby Bell, but not until after weeks of back-and-forth negotiations.

If the outcome of the Qwest-US West-Global Crossing-Frontier scrum is any indication, the negotiations may be far from over.

Already, the US West-Qwest pairing has been fraught with uncertainty. Investors drove down Qwest's stock after the merger announcement, effectively questioning its acquisition of an older phone company. US West chief executive Sol Trujillo also recently announced he will resign after the deal closes.

The tone of the Qwest statement may indicate a growing rift between US West and the upstart communications firm. At one point this past week, US West threatened a lawsuit if Qwest tried to break up the two companies' merger plans.

Qwest has benefited as a competitor and on Wall Street by portraying itself as part of a new breed of communications firm, while US West retains its legacy as an incumbent local phone company, or Baby Bell.

Announcements of the end of talks may place Global Crossing back on the radar of Deutsche Telekom, a giant telecommunications provider in Europe that is looking to expand its reach to the U.S.

Yesterday, Global Crossing's new chief executive Leo Hindery said his company is not for sale, according to a Bloomberg report.