Qwest Scrapes Up Allegiance

Buys bankrupt facilities-based telco to expand into new markets

December 18, 2003

2 Min Read
Qwest Scrapes Up Allegiance

Qwest Communications International Inc. (NYSE: Q) announced Thursday afternoon that it intends to buy Allegiance Telecom Inc. for approximately $300 million in cash (see Qwest to Buy Allegiance).

Under the terms of the agreement, which has been rumored for several months, Qwest will issue approximately $90 million of convertible debt with a conversion price of $6.10 per share and a coupon of 1.5 percent, in addition to the cash price (see Qwest May Want Allegiance).

Dallas-based Allegiance provides service to about 100,000 small and medium-sized business in 36 cities. The company filed for Chapter 11 protection in May this year and was delisted from Nasdaq. It employs roughly 3,600 people (see Allegiance Files for Chapter 11 and Allegiance Declares Chapter 11).

For Qwest, the attraction of the deal is pretty straightforward. Allegiance has customers in 31 markets outside of Qwest’s territory, and the RBOC badly needs to boost its traditional voice revenues -- in decline despite a third-quarter profit (see Qwest Reports Q3 Profits).

"Upon closing of this transaction, Qwest will have more POPs than any other inter-exchange carrier in the U.S.," said Richard Notebaert, Qwest chairman and CEO, in a prepared statement.

For Allegiance, the deal should bring some relief. At least two other parties are said to have been sniffing around the company for some time, without making a move.

The agreement with Qwest is subject to approval by the U.S. Bankruptcy Court and certain other government regulatory agencies. Allegiance has filed a motion with the Bankruptcy Court to begin a sale process in which Qwest will be designated as the stalking horse bidder and other interested potential bidders will have an opportunity to offer higher bids.

If Qwest is successful in the bidding process, the company expects to close on the transaction in 2004.

In afternoon trading on the New York Stock Exchange, Qwest shares were up 18 cents at $3.72.

— Jo Maitland, Senior Editor, Boardwatch

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