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September 20, 2005
Qwest still focused on M&A
The strategic challenge for Qwest remains one of the most interesting in telecom. It doesn't have a potential easy exit, like BellSouth, which has a good shot at being acquired by a larger company. And having pared its debt from its highest levels, it can't really pull the plug and seek bankruptcy protection. That means it needs to focus on the basics, such as improving the operation of its business. And Qwest is trying to fashion a new M&A strategy from the ashes of its failed attempt to buy MCI. It lost out to Verizon, which is close to winning approval for its purchase. Qwest has yet to find a credible substitute for MCI. Telecom analyst David Barden of Banc of America Securities says "M&A activity remains one of management?? core strategic initiatives to leverage assets, boost margins and drive growth." But it has yet to find a target that would meet its requirements for strategic fit, operational fit and financial discipline."
Basically, there is no substitute for MCI, which would have allowed Qwest to spread its sizable debt load over a much bigger revenue base, thereby improving its financial profile. Barden suggests that it might make sense for Qwest to try to pick up assets that regulators force SBC and Verizon to divest as they close their acquisitions of AT&T and MCI. And Barden says Qwest continues to look at smaller telecom companies (such as long-rumored target XO Communications), which would give it out-of-region networks in a variety of cities to complement its nationwide long-distance network and its local phone networks in the western U.S.
The other possibility: buyout at the hands of a private equity group.
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