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Telecom Takeover Talk Sends Qwest Shares to 52-Week High
By Dionne Searcey
The Wall Street Journal
Friday, March 17, 2006

Shares of Qwest Communications International Inc. closed at a 52-week high yesterday, as a possible acquisition elsewhere in the telecommunications industry led investors to speculate that Qwest could also be a candidate for a takeover.

The Denver-based company's stock spiked to a four-year high of $7.48 by midday before pulling back.  Shares closed at $7.09, up 22 cents, or 3.2%, in 4 p.m. New York Stock Exchange Composite trading.

The rally was driven by news that two investment firms are interested in Vodafone Group PLC's Japanese mobile subsidiary.  Investors are hoping that private-equity firms and other cash-rich investors will also make a move on Qwest.  A Qwest spokesman said the company doesn't comment on the day-to-day movement of its shares.

Cerberus Partners LP and Providence Equity Partners Inc. -- a hedge fund and private-equity firm, respectively -- are preparing to make a multibillion dollar bid for the Japanese Vodafone unit, according to people familiar with the matter.  The two firms see that business as a valuable entry to the Japanese market.  Vodafone, meanwhile, has been under pressure from investors to shed its assets in Japan.

Qwest's future has been the subject of speculation since the recent announcement that AT&T Inc. had reached a $67 billion deal to takeover BellSouth Corp.  Wall Street is questioning how Qwest fits into the new telecom landscape if regulators approve the AT&T-BellSouth deal.  Verizon Communications Inc. has downplayed rumors that it might be interested in buying Qwest, which has led some investors to believe that private-equity firms or other potential acquirers might be interested.

However, some analysts consider Qwest a mediocre asset:  While the company serves metropolitan markets including Phoenix, Denver and Seattle, its phone lines also stretch across a wide swath of rural territory, making them more expensive to tend than those in urban centers.

Also, many consumers are continuing to disconnect their landlines in favor of cellphones or Internet phone service.  Most major phone companies have been able to offset those losses by owning wireless assets, a growth business.  But Qwest only resells wireless service from Sprint Nextel Corp.

Like other phone companies, Qwest is facing a significant threat from cable competition.  Todd Rosenbluth, an analyst with Standard and Poor's in New York, said any investment firm looking to buy a telecom company might do better to take over a smaller, rural operation that has insignificant competition from cable and a stable customer base.

"There are better plays out there," he said.

Write to Dionne Searcey at dionne.searcey@wsj.com

http://online.wsj.com/article/SB114255174834600634.html?mod=hps_us_at_glance_technology