Qwest to buy Allegiance?

Rumor mills are in over drive, and the latest one says that beleaguered baby bell, Qwest Communications is looking to buy bankrupt competitive local exchange carrier, Allegiance Telecom. The news is being reported by Wall Street Journal (via Quicken), which places the value of the deal at about $350 million. Earlier this week Allegiance reported better than expected quarter, despite being in bankruptcy.

bq. Net loss before reorganization items totaled $66.3 million, compared with $113.1 million a year ago, the company said.Revenue for the quarter ended Sept. 30 was $188.2 million, down from $219.5 million last year. Allegiance Telecom said the decrease was due in part to declines in intercarrier compensation and customer premise equipment business revenue.

The merits of this forthcoming merger are hard to see. Earlier this week Qwest announced that it would buy back $2.25 billion in debt, and the stock shot up 8 percent. What that means is that markets want lower debt and cleaner balance sheets. Allegiance buy murkies the waters quite a bit.

By buying Allegiance, Qwest would be taking on more debt. Is it worth it? Despite all the great assets Allegiance has, it still is a CLEC and Q can do better by buying piece meal from other failed CLECs.

Bottom line, two wrongs don’t make right.