Monroe, La.-based independent telco CenturyTel has confirmed that it plans to acquire fellow telco Embarq, based in Overland Park, Kan., for about $5.76 billion in stock. However, including Embarq debt assumption, the total deal will cost $11.6 billion.
Through the deal, Embarq shareholders will receive 1.37 shares of Centurytel stock for each share of Embarq stock they own, resulting in a combined entity in which Embarq shareholders "are expected to own approximately 66 percent and CenturyTel shareholders are expected to own approximately 34 percent," a press release said. The deal price represents 36 percent value over Embarq's Friday closing stock price.
CenturyTel Chairman and CEO Glen Post said in a conference call discussing the deal that "it makes great strategic sense. It reinforces the strategics plans of both companies," and will allow the combined company to accelerate its realization of those strategies, including greater broadband availability and more aggressive marketing of broadband against cable TV company offerings.
Telco consolidation at the independent level has been expected for many months, though the credit crisis and macro-economics conditions were seen as freezing progress toward such deals. It was reported just weeks ago by The Wall Street Journal that Embarq was looking to sell itself, but that the timing of a deal was being slowed some by poor market conditions. Post said the companies will look to refinance Embarq's $5.8 billion in debt before the planned closing of the acquisition in the second quarter of next year. He added that other costs related to the deal will amount to about $275 million over the next three years.
Before the deal closes, the companies will need approval from their own shareholders and regulatory agencies in at least 16 states, as well as the approval of the U.S. Department of Justice and the Federal Communications Commission. Post said the companies would appoint a transition team to manage the regulatory process and other items on the deal's to-do list, including recommendations on a new name for the combined company.
Embarq had been rumored since last year to be ready to pursue a consolidation move whenever the market seemed ready to support it. After former CEO Dan Hesse left to join Sprint late last year, Tom Gerke, a former corporate mergers attorney turned Embarq executive, took over as CEO. However, some industry observers may be surprised by the identity of Embarq's new mate. Windstream Communications, Qwest Communications and Verizon Communications, among others, have been mentioned in the past for a possible match-up with Embarq. Embarq is much larger than CenturyTel and focuses on somewhat more urban markets than CenturyTel's rural targets, but Post said the companies have "very similar corporate cultures."
Post acknowledged that Embarq has seen more advanced effects of cable TV competition in its markets, and that the combined company, which will be based in Monroe, La., with a presence in Overland Park, Kan., will take the fight to the cable TV companies' doorsteps via a direct mail marketing approach, rather than that "more mainstream marketing" approach Embarq has used thus far.
Gerke said the process leading up to the decision to do the CenturyTel deal was "a very robust process. We looked at all the strategic alternatives, and weighed all of the relevant factors. We felt it was important to do it now. We've often said that industry consolidation makes sense, with the requirement that it has to be accretive to both companies."
The resulting company will have close to 8 million access lines and 2 million broadband customers. Post said the combination also will realize $400 million in synergies, including better capex management by attaining increased purchasing leverage from its potential vendors.
Here's the press release
The CenturyTel-Embarq deal raises at least a couple interesting questions
Both CenturyTel and Embarq reported third quarter earnings today
Rumors of a potential Embarq sale were in the news this month
Centurytel gained spectrum via this year's 700 Mhz auction