Qwest May Want Allegiance

Qwest Communications International Inc. (NYSE: Q) wants to buy bankrupt service provider Allegiance Telecom Inc. for $350 million, according to a report in the Wall Street Journal.

Allegiance, which provides service to small and medium-sized business in 36 cities, filed for Chapter 11 protection in May this year (see Allegiance Files for Chapter 11 and Allegiance Declares Chapter 11) and was delisted from Nasdaq. It has continued to trade while seeking a way to reduce its debt (see Allegiance Reports Q3 Loss), though its revenues shrank from $204.6 million in the first quarter to $188.2 million in its third quarter (to September 30).

The company has been focusing on cutting costs, particularly by reducing its staff levels. The company's headcount was 2,912 as of September 30, down from 3,312 on June 30. It had $1.4 billion in debt when it filed for Chapter 11 and currently has $284.6 million in cash available.

Qwest's bid, according to the report, would include taking on the cash and debt.

Qwest is currently in transition, and is looking to expand its lines of business as domestic traditional voice revenues decline (see Lucent's VOIP Group Gets a Boost and Qwest Jumps Into VOIP Hotbed). The RBOC, which just announced its third-quarter results, expects revenues to increase in 2004 (see Qwest Reports Q3 Profits).

It appears Qwest is not the only party interested in Allegiance, as sources close to Allegiance claim that at least two other unnamed potential bidders have run their eyes over the business service provider's books.

No one from either carrier was available for comment as this article was published.

Qwest's share price closed down 11 cents (2.97%) on Thursday at $3.59.

— Ray Le Maistre, International Editor, Boardwatch

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