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Filing: Qwest talked with two other firms before taking CenturyLink's offer

By Andy Vuong
The Denver Post

June 5, 2010



Prior to accepting a takeover offer from CenturyLink in April, Qwest held merger-and-acquisition discussions with two other companies, including a private equity firm, according to a regulatory filing.

Denver-based Qwest also disclosed in Friday's filing that it tried to garner a higher premium from CenturyLink, to no avail.

Qwest's management began exploring potential merger opportunities in September. A month later, an investment broker introduced Qwest chief executive Ed Mueller to CenturyLink chief executive Glen Post, and the two held preliminary merger discussions.

Qwest brought an undisclosed company into the fold in November and opened talks with a private equity firm in December.

In early February, the undisclosed company told Mueller that it "was not interested in pursuing a transaction with Qwest at that time."

On March 19, the private equity firm also dropped out, citing "the amount of debt and equity that would need to be raised, the continuing challenging conditions in the financial markets in general and limited estimated financial returns."

The talks with the private equity firm included a joint venture and an outright buyout of Qwest, the filing states.

On April 22, Monroe, La.-based CenturyLink announced it would acquire Qwest for about $10 billion in stock and nearly $11.8 billion in assumed debt.

At the time, the offer represented a 15 percent premium for Qwest shareholders. A month earlier, Qwest's financial adviser, Lazard Frères & Co., had told CenturyLink that "a premium at a percentage well into the 30's would be more appropriate."

On March 8, Mueller tried to play hardball, telling CenturyLink that if it was "only contemplating an offer at a 15 premium to Qwest's current share price, there was no need for the parties' management teams to meet," according to the filing.

Based on Friday's close, the deal now represents an 8 percent premium for Qwest shareholders. The boards of both companies have unanimously approved the merger, and shareholders are expected to vote on the deal in August.

Analysts have questioned why Qwest rushed into a deal. If the company could have waited, another potential bidder — Frontier Communications or Windstream Communications — may have surfaced.

"If we get all of the benefits today, we need to do it today," Mueller said in a recent interview.

While Qwest was deep in merger discussions, Frontier and Windstream were still wrapping up other acquisitions. Frontier received final regulatory approval for its purchase of 4.8 million land lines from Verizon in late May. Windstream announced the completion of its $1.2 billion deal for Iowa Telecommunications Services on Tuesday.