XO Communications Inc. won the bidding war for Dallas-based Allegiance Telecom Inc. Friday morning with a stock and cash offer valued at $651 million.

The winning bid was significantly higher than the $390 million cash and bond deal first proposed by Qwest Communications International Inc., indicating that an auction held Thursday and Friday was intensely competitive.

XO, based in Reston, Va., is controlled by financier Carl Icahn who owns more than three-fourths of the company's voting interest. It's unclear exactly how much control he will have of the company after the acquisition, because XO will issue 45.38 million shares to Allegiance's lenders. It will also pay $311 million in cash.

Allegiance has been in Chapter 11 bankruptcy since May 2003. It will seek court approval for the XO deal from U.S. Bankruptcy Court Judge Robert Drain in New York on Feb. 19.

XO won't acquire an Allegiance subsidiary that sells and services telecommunications equipment or a business that provides capacity to dial-up Internet service providers.

XO's stock was trading up 14 cents to $7.52 Friday morning. Allegiance shares, which are expected to be wiped out by its bankruptcy reorganization, were unchanged at 5 cents.

By: DocMemory
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