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Apr 22, 2010 3:51 PM

Qwest Communications bought by CenturyTel

NEW YORK (AP) - CenturyTel Inc., the country's fifth-largest local-phone company, said Thursday that it will buy Qwest Communications International Inc., the third-largest, in a stock swap worth $10.6 billion to gain the benefits of scale in a shrinking business.
The combination would have about 18 million phone lines serving
customers in 37 states, but would still be dwarfed by AT&T Inc. and
Verizon Communications Inc. It would be based at CenturyTel's
headquarters in Monroe, La., rather than in Denver, where Qwest is
based.
The number of landlines in the U.S. shrinks by about 10 percent
per year as consumers chose to rely on their wireless phones or
service from cable companies. The fourth-largest provider of
landline phone service in the country, by number of subscribers, is
now cable company Comcast Corp.
The acquisition continues a trend of consolidation in the
landline business. But neither Qwest nor CenturyTel own wireless
networks that can compensate for the loss of landlines, as AT&T and
Verizon do.
But they hope the acquisition can make their combined company
more competitive as a provider of telecommunications services to
businesses and expand the reach of their broadband Internet service
for consumers.
Analyst David Dixon at FBR Capital Markets noted that the
federal government is moving to shift subsidies away from rural
phone service and toward broadband lines. Rural phone subsidies are
a large source of revenue for CenturyTel, and the shift could be a
challenge.
The deal would likely to lead to job cuts at the companies,
which are already shedding positions. The Communications Workers of
America, the largest union in the telecommunications industry, said
it "looks forward to serious discussions" with both companies.
CenturyTel, which does business as CenturyLink, acquired Embarq
Inc., the landline service company once part of Sprint Inc., last
year.
Qwest provides traditional phone service in 14 mostly Western
states and is a successor to one of the regional Baby Bell
companies spawned by the breakup of AT&T in the 1980s. Financial
maneuvers during the Internet boom left it saddled with a heavy
debt load, making it an unlikely acquirer, even though it is larger
than CenturyTel.
CenturyTel is offering stock worth about $6.02 per share for
each Qwest share, a premium of about 15 percent to Qwest's
Wednesday closing price of $5.24.
Qwest stockholders would receive 0.1664 CenturyTel shares for
each share they own and hold 49.5 percent of the new company, while
CenturyTel stockholders would own 50.5 percent of the business.
CenturyTel would also assume $11.8 billion in Qwest's debt.
Both companies' boards have approved the tax-free acquisition,
which is expected to close in the first half of 2011. They expect
the acquisition to save the combined company $625 million over
three to five years following the close of the deal.
Qwest shares rose 24 cents, or 4.6 percent, to $5.48 ahead of
regular trading, while CenturyTel fell 65 cents, or 1.8 percent, to
$35.55.
---
AP Business Writer Andrew Vanacore contributed to this report.

(Copyright 2010 by The Associated Press. All Rights Reserved.)

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