Subject: Qwest falls on merger talk, downgrade
By Jeffry Bartash, MarketWatch
Last Update: 2:45 PM ET Feb. 7, 2005
WASHINGTON (MarketWatch) - Shares of Qwest Communications International Inc.
dropped 7 percent Monday amid reports that its attempt to acquire MCI Inc.
may be faltering.
Also hurting shares was a "sell" recommendation by the brokerage A.G Edwards.
Qwest surged last week on news that MCI and Qwest had been holding talks.
Yet even if the two companies announce a merger, the stock of Qwest is already more than fairly priced, A.G. Edwards analyst Tony Ferrugia told clients Monday
He cut his rating on the stock to "sell" from "hold," saying "if the deal does not occur, our assumption is that Qwest's shares would fall."
In recent action, Qwest (Q: news, chart, profile) was down 33 cents at $4.53.
Last week, The Wall Street Journal reported that the two companies explored a deal in which Qwest would pay about $6.3 billion to acquire MCI. Yet talks cooled over the over the weekend, the Journal reported. The two companies have declined to comment.
Denver-based Qwest, the smallest of the four remaining Baby Bell local phone carriers, could use MCI to expand its reach among large multinational corporations as well as consumers nationwide.
A deal with MCI could also help Qwest shave its onerous debtload - more than
$15 billion at the end of the third quarter. MCI still generates plenty of cash from its long-distance operations, while analysts say Qwest loses money from its smaller long-distance business.
Formerly known as WorldCom, MCI has been viewed as a buyout target since it emerged from bankruptcy protection last year. As the industry moves toward just a few large, full-service phone companies, analysts say MCI needs to pair up with a stronger partner.
MCI mostly sells data and long-distance service to large corporations, but revenue is under pressure in that market segment as well. The company lacks a crucial wireless-phone component and has pulled back from the intensely competitive consumer market.
Analysts believe MCI is trying to draw a bid from Verizon Communications
(VZ: news, chart, profile) or BellSouth Corp. (BLS: news, chart, profile) , part-owners of the nation's two largest wireless phone companies. Qwest does not own a wireless network.
Jeffry Bartash is a reporter for MarketWatch in Washington.