can't seem to put ghosts to rest
By Rob Reuteman
Rocky Mountain News
Saturday, February 19, 2005
Qwest can't buy a break, it seems.
Even as the phone company said it would make a new bid for MCI - and a brighter future - the ghosts of Qwest's past came back to haunt.
Refusing to take no for an answer, Qwest Chief Executive Officer Dick Notebaert notified regulators Thursday that he would sweeten an $8 billion cash-and-stock offer that was rejected by MCI earlier this week in favor of a cheaper bid from larger and healthier Verizon.
On Friday, the stocks of both MCI and Qwest rose in reaction to the Notebaert letter, while Verizon's dipped.
"Momentum is certainly shifting back toward Qwest," analyst Tim Gilbert told Bloomberg News.
Then Qwest's karma kicked in once again.
Former executive Marc Weisberg was indicted Friday by a federal grand jury in Denver for reaping $2.9 million by misusing his position as manager of the company's corporate investments. According to the 12-count indictment, Weisberg secretly invested in companies that had offered investment opportunities to Qwest from March 1999 through September 2001.
Sources tell the News that prosecutors are trying to pressure Weisberg for evidence they can use against former Qwest CEO Joe Nacchio. Nacchio ran the company from its 1997 initial public offering through 2002, a period when it booked more than $2 billion of revenue that has since been erased.
Nacchio was fired in June 2002, replaced by Notebaert, who's been doing his level best to turn the company around. He's shed debt, but a staggering $17 billion remains. He's improved sagging service and so far skirted bankruptcy. He's also settled most scores with regulators, agreeing last October to pay $250 million to settle the accounting scandal with the Securities and Exchange Commission.
But the recent past has been hard to shake. Most observers think MCI chose a lower bid from Verizon partly because it's a more solid company. Qwest still hasn't settled numerous shareholder lawsuits that stem from the Nacchio era. Those settlements may cost the company another $1 billion, and some legal beagles think that alone is enough to scare off MCI. One large MCI shareholder referred to any Qwest stock used to purchase MCI as "funny money."
Three years into the various probes of Qwest's turn-of-the-century finance schemes, no one has yet gone to jail. Investors lost hundreds of millions of dollars, and tens of thousands of Qwest jobs are gone. That's frustrating for all concerned.
Notebaert's out-of-the-blue bid for MCI was characterized by one analyst two weeks ago as "two damaged ships lashing themselves together to ride out stormy seas."
Nelson Phelps, executive director of the Association of US West Retirees and often a harsh critic of Qwest, said, "I think this is gutsy. I think this is a very smart move. What it will do for Qwest is give them nationwide, larger business customers, and they need that."
Earlier this week, MCI chose Verizon instead. There were dissident rumblings from the New Qwest all week long, and on Thursday, Notebaert launched a renewed bid.
On Friday another exec from the Old Qwest was indicted.
For the New Qwest, the timing couldn't have been worse.
reutemanr@RockyMountainNews.com or 303-892-5177