Qwest's Fingers Do the Walking to Big-Name Banker

The size of

Qwest's

(Q)

for-sale sign just got dramatically bigger.

The deeply indebted Denver telco has hired Tom Middleton, a former mergers and acquisitions banker with Merrill Lynch, to help sell assets. The company has talked in recent months of selling its directory publishing unit and other properties. But industry observers say the move to bring on a hired gun of Middleton's caliber signals a much larger transaction may be in the works -- namely a merger with a regional Bell.

"Tom is well-connected in the industry," says Lehman Brothers analyst Blake Bath. "He knows the senior management of most of the industry players, and it's quite conceivable that Qwest aligns with one of those players in the next few years."

In an industry in which nearly every staggering player has been presumed to be talking with every other staggering or bankrupt player, the list of possibilities grows long. But some observers say

BellSouth

(BLS)

is among the top candidates. Qwest shares, which have lost some 80% of their value in the past year, rose 55 cents Friday, to $6.90.

Sellathon?

Qwest, which has made no formal announcement of Middleton's arrival, says he was hired as a consultant to help the company sell some of its assets. The company has said it is looking to raise cash and pay off debts by selling businesses such as its rural phone systems and its directory publishing units.

But to many observers, the notion that Middleton -- a guy who brokered some of the industry's largest mergers, notably Bell Atlantic/GTE and even U S West /Qwest -- would be peddling phone books didn't quite fit.

"There will be a major consolidation in the industry, and it's very possible Qwest combines with a Bell," says Friedman Billings Ramsey analyst Susan Kalla. "But to pull that off, you need someone high-powered enough like him to make it happen."

Middleton's arrival also coincides with what some close to the company describe as Chairman Phil Anschutz's growing concern and involvement with the beleaguered company.

"I wouldn't be surprised if the Anschutz group was getting involved," says Lehman's Bath. Anschutz, who founded Qwest in 1996, is the company's largest shareholder, with 18% of the stock. Anschutz's office didn't immediately return a call seeking comment Friday.

Huddling

In fact, Qwest executives huddled one recent weekend at Anschutz's Colorado ranch to discuss the direction the company was heading. And according to a person familiar with the discussions, those people came away from the meeting with a very somber outlook, particularly with regard to the cash-burning operations such as the international portion of the business and its national broadband network, known as classic Qwest.

"This is a terrific hire for Qwest," says Lehman's Bath. "He'll be able to help them meet their near-term needs for financing and divestitures, and also help them position themselves for the longer term."

To be sure, this adds more conjecture to the debate over CEO Joe Nacchio's future with the company. Bath says Middleton's hiring reflects well on Nacchio by bringing in someone who can more quickly lower Qwest's debt obligations and presumably find a winning Bell partner.

But perhaps an even more interesting twist is Middleton's connection to the U S West side of the organization. Up until the end of 2001, Middleton served on the board of graviton, a wireless sensor networking company run by former U S West chief Solomon Trujillo.

Some observers say the Qwest/Nacchio camp and the U S West camp are strongly divided. The choice of Middleton from the U S West side may be at least a hint of where Anschutz stands.