CenturyTel, seeking scale,
to buy Qwest for $10.6B
By Peter Svensson,
AP Technology Writer
© 2010 The
April 22, 2010
NEW YORK — 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
The combined company would have about 17 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 deal would shore up the combined company by helping it
reduce expenses and improve its ability to compete with cable.
But it would still be in the grip of a dismal trend: The number
of landlines in the
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
Neither Qwest nor CenturyTel own wireless networks that can
compensate for the loss of landlines, as AT&T and Verizon do.
Last year, 22.7 percent of homes used only cell phones,
according to a survey by the Centers for Disease Control and
But Qwest and CenturyTel 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. It may also
provide TV services over phone lines to compete more
aggressively with cable, according to Glen Post, the CEO of
CenturyTel, who would head the combined company. CenturyTel has
started providing TV services on a small scale in some areas.
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. Qwest had 30,138 employees at the end of last
year, while CenturyTel had about 20,000.
Qwest provides traditional phone service in 14 mostly Western
states. Originally a long-distance and Internet service
provider, it bought US West in 2000 in a process that started as
a hostile takeover. US West was one of the seven "Baby Bells"
formed when the federal government broke up the AT&T monopoly in
The government broke up the AT&T monopoly to foster competition
when landline phones were the prime means of two-way
communications in the country. Today, phone lines are declining
in importance and number, and the phone companies are combining,
reversing the effects of the breakup.
The US West deal and accounting shenanigans in the following
years left Qwest struggling under a heavy debt load. Though it
has managed to shore up its finances substantially in recent
years, it was still an unlikely acquirer.
CenturyTel, on the other hand, has an investment-grade credit
rating, giving it the flexibility to buy the larger Qwest. It
was not part of the original AT&T system, and it has expanded by
buying up other, mostly rural, independent phone companies. Last
year, it bought Embarq Inc., the landline service company once
part of Sprint, giving it an urban presence as well. To reflect
that deal, CenturyTel now does business as CenturyLink. It
provides service in 33 states, but its presence is small in most
of them. It's biggest in Florida,
Nevada, North Carolina,
Virginia and Wisconsin.
CenturyTel's Post said it had not been decided which brand would
be used after the acquisition, but he said he's leaning toward
using "CenturyLink" for the consumer business and perhaps
including the "Qwest" name when marketing to businesses.
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
Ed Mueller, the CEO of Qwest, pointed out on a conference call
with investors and analysts that Qwest shareholders would
benefit from CenturyTel's higher quarterly dividend if the deal
goes through. Qwest's dividend is now worth 32 cents per share.
Under the terms of the deal, Qwest shareholders would be getting
the equivalent of 48 cents per share in future dividends.
CenturyTel would also assume $11.8 billion in Qwest 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 26 cents, or 5 percent, to $5.50 in early
afternoon trading, while CenturyTel fell 69 cents, or 1.9
percent, to $35.51.
The deal will be reviewed by the Federal Communications
Commission and either the Justice Department or the Federal
Trade Commission. State telecommunications regulators will also
examine the transaction.
Analysts said the deal is likely to be approved by regulators
because they mostly operate in different areas. However, they
could attach conditions, such as an obligation to expand
high-speed Internet access or to provide it at certain prices.
AP Business Writers Andrew Vanacore in New
York and Joelle Tessler in Washington contributed to