Qwest Communications Interna-tional Inc, seeking to lower debt and avert bankruptcy, agreed to sell its telephone-book unit for US$7 billion to buyout firms Carlyle Group Inc and Welsh, Carson, Anderson & Stowe, said people familiar with the matter.
The two firms, advised by JP Morgan Chase & Co, topped a bid from a rival group including Thomas H. Lee Partners LP, the people said. That group offered Qwest, the biggest local-phone company in 14 western US states, US$3 billion for part of the operation, the people said. The transaction is expected to close in six months to nine months, they said.
Qwest must reduce its US$26.3 billion of debt to avoid a Chapter 11 filing after the company's fiber-optic network didn't draw enough demand, analysts say. Chief Executive Officer Richard Notebaert, who's paying more than some bankrupt companies to borrow, got less for the phone-book business than the US$8 billion to US$10 billion analysts had forecast.
"I'm a little disappointed Qwest wasn't able to negotiate for more," said Bruce Allen of Cascade Financial Management in Denver, which manages about US$200 million and has sold most of its Qwest stake. "I'm relieved that they have completed the sale because clearly this has been a major hurdle."
The sale would be the biggest leveraged buyout since Kohlberg Kravis Roberts & Co's US$31.4 billion purchase of RJR Nabisco Inc in 1989.
Shares of Denver-based Qwest, the target of accounting probes by US regulators, rose US$0.31 to US$2.24 in 4pm New York Stock Exchange composite trading. They're down from a high of US$66 in March 2000.
Qwest spokesman Tyler Gronbach and Carlyle spokesman Chris Ullman declined to comment.
A Welsh Carson official wasn't available.
Qwest, with US$699 million in cash, has agreed to use some proceeds of a directory sale to pay down US$3.39 billion in bank loans due in May. Qwest will get proceeds from the eastern part of the business within three months, the people said. It includes Colorado, Iowa, Minnesota, Montana, Nebraska, North Dakota, South Dakota and Wyoming.
Bidders were drawn to the steady cash stream of the Qwest unit, which sells advertising in directories delivered free to customers from Minnesota to Washington. Before his resignation in June, former CEO Joseph Nacchio said a winning bidder for the QwestDex unit would be picked in June.
The US Securities and Exchange Commission and the US attorney in Denver are investigating whether Qwest inflated revenue by swapping long-distance network capacity with rivals such as Global Crossing Ltd.
The company plans to restate results after misreporting more than US$1 billion in sales and expenses between 1999 and 2001.
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