Figuring what would happen -- and how the arbs would play all three stocks during a prolonged merger waltz -- was mind-boggling. I spent hours trying to game this one and never came up with a scenario, or a set of scenarios, I thought solid.
I have a personal stake here: As regular readers know, I am long Qwest, and haven't sold shares during the past year's madness, so a takeout by Deutsche Telekom sounded awfully good to me. And to almost every other Qwest shareholder, too, I suspect -- including Phil Anschutz, whose 39% ownership of Qwest weighs heavy in this deal. Anschutz had made clear he liked the Deutsche Telekom offer.
Deutsche Telekom was willing to pay about a 50% premium over market price for Qwest, if a deal could be struck. With Qwest peaking in the 60s over word of the possible Deutsche Telekom deal, Qwest holders were looking at a fat payday, too -- if the deal was struck.
That wasn't far off where Qwest might have been anyway, absent the awful US West deal. So it seemed that salvation was, indeed, nigh.
It wasn't clear just how much premium Deutsche Telekom was willing to pay for US West -- less, almost certainly, than for its real target, Qwest. Since the US West shares were already pumped way beyond their intrinsic value, it couldn't be much.
US West directors walked a fine line here -- a line I'm not satisfied they trod correctly. If they killed the Deutsche Telekom deal, relying on the big payoff they'd get under the US West-Qwest deal, and then that deal didn't jell, they'd likely face shareholder lawsuits for failure to meet their fiduciary responsibility.
But if they took less from Deutsche Telekom than it seemed they'd get in a completed deal with Qwest, they could also get hammered.
And if they accepted a smaller premium over the current market price from Deutsche Telekom than Deutsche Telekom was paying Qwest, they'd look like goats. Or worse.
Three bad choices: What to do?
In the end, we got what some are calling "Sol's Revenge": a decision by US West management and directors to spurn Deutsche Telekom's offers and place their bet on completing the merger with Qwest. (Or, possibly, to tempt Qwest into walking away from its deal with US West, which would have led to certain, very high-dollar litigation, indeed.)
And so US West killed the deal.
Joe Nacchio and his team were far from innocent in this mess, and deserve almost as much blame for killing the Deutsche Telekom buyout as do Trujillo & Co. Qwest was piggish in the extreme; rather than focusing on what it takes to get the deal done -- a deal that was clearly a good one for shareholders of both Qwest and US West -- Qwest management worried too much about whether US West would do better than they would (unfairly, of course, in their view).
Heck, if US West picked up a big premium over a share price already inflated by Qwest's pursuit of the company, it
be unfair: US West shareholders would be getting far more than, by any traditional assessment, their shares are worth.
Whoever said the market is fair?
This was a good deal for both US West and Qwest shareholders, and both managements should have done what they could to close the deal.
Ego and pride can be terrible things when they get out of hand.
What should Qwest and US West holders do now? Should those who hold neither jump in now?
Reality: This one ain't over yet. I still think Deutsche Telekom may find a way to come back to the table with a new and different set of offers. Qwest and US West management may get so much heat from their shareholders that they talk civilly ... at least long enough to sell both companies to a third party.
Even if that third party is not Deutsche Telekom, I think we can expect to see other potential acquirers circling both companies. A prudent soul might worry that given the bad behavior on both sides, these companies are now damaged goods in the eyes of any serious acquirer.
Of course they are! But there are plenty of CEO-adventurers out there, tel-tech swashbucklers -- with cheap currency in the form of their inflated share prices and egos bigger than Nacchio and Trujillo combined -- who'd take a run at this.
over. I'm waiting for the next round in this ugly successor to the Thrilla in Manila, the Rocky Mountain Rumble.
And I don't think selling positions in either company makes much sense right now. But I also think it's a scary time for new investors to jump into this fray.
If you missed
great column on Friday on gaming the stocks of Qwest and US West in the wake of this failed Deutsche Telekom deal, go read it now. He makes a strong case for playing the present exaggerated spread by buying US West shares.
Makes sense to me. As much as anything does, in the wake of Sol and Joe's messy food fight.
One last thought: Can anyone imagine these two companies ever working together, after what's gone down?
Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was long Qwest, although holdings can change at any time. Seymour does not write about companies that are current or recent consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites your feedback at