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Cable Technology Feature Article

April 22, 2010

CenturyTel & Qwest to Merge in $10.6 Billion Deal, to Serve 37 States

By Kelly McGuire, TMCnet Editor

In a move that combines two U.S.-based telco powerhouses, CenturyTel today announced plans to acquire Qwest (News - Alert) Communications International Inc., in a stock swap worth $10.6 billion.

The agreement, once finalized, will merge the third and fifth largest telephone companies into one entity that experts say will cater to 37 U.S. states.

With more than 18 million phone lines combined, the acquisition signals the increasing popularity of mobility and the threat of consumer-focused phone trends among cable companies such as Cablevision or Comcast (News - Alert).

Hoping to pre-empt consumer migration to a Cablevision Triple Play-type package, CenturyTel - formerly known as 'CenturyLink' - and Qwest likely want the acquisition will create a competitive edge with a higher quality communications platform, to expand the reach of their broadband Internet services for consumers. The companies were not immediately available for comment.

In a prepared statement, Glen F. Post III, CenturyLink's CEO and president, said that the combination of CenturyLink's and Qwest's employees, assets and service areas will provide greater scale, scope and expertise and will provide 'significant benefits for shareholders, customers and our communities.'

'This combination will enhance our ability to deploy innovative IP products and high-bandwidth services to business customers, expand broadband availability and speed to consumers, and offer superior, differentiated video products,' Post said.

He added that the combined company's national network will allow it to deliver strategic and customized product and service solutions to business, wholesale and government customers throughout the country.

'In addition, we will still maintain the focus on our local markets through our effective regional operating model and targeted marketing strategies,' he said. 'We believe shareholders will benefit through their investment in a company that has greater financial resources and flexibility, including a more diversified revenue base and an enhanced competitive position.

However, neither Qwest nor CenturyTel own wireless networks that can compensate for the loss of landlines, the way that wireless carriers AT&T (News - Alert)and Verizon (News - Alert) Communications Inc. do, which could ultimately dampen the merged company's ability to boost profits as much as they'd hoped.

It seems acquisitions are a major form of business opportunities for CenturyTel, which acquired Embarq (News - Alert) Inc., the landline service company once part of Sprint Inc., last year.

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 Chairman and CEO Edward A. Mueller said in the statement that his company has been focused for years on generating sustainable free cash flow and strengthening the balance sheet, as well as creating innovative approaches to drive efficiency and perfect the customer experience.

"We are pleased with the progress we have made and believe that the combined company will be well positioned to win in an increasingly competitive marketplace," Mueller said.

He added that the transaction should be "compelling" for shareholders, whom he said stand to benefit from an immediate premium for their shares, an increase of approximately 50 percent in the annual dividend, and the opportunity to participate in the upside potential of the combined company through their ownership of CenturyLink stock.

"We look forward to becoming part of a larger company with a strong financial profile, an industry-leading local and national network, and a shared commitment to customers, employees, communities and shareholders," he said. "We also look forward to maintaining a key presence in Denver."


Kelly McGuire is a TMCnet Web editor, covering CRM and workforce technologies, and anchor of its daily TMC Newsroom video broadcast. Kelly also writes about eco-friendly 'green' technologies and smart grids, compiling TMCnet's weekly e-Newsletters on those topics, as well as the cable industry. To read more of Kelly's articles, please visit her columnist page.

Edited by Kelly McGuire