CenturyLink (CenturyTel) 
will acquire Qwest Communications in a tax-free, stock-for-stock transaction valued at $22.4 billion, including net debt of $11.8 billion. Under the deal, Qwest shareholders will receive 0.1664 CenturyLink shares for each share of Qwest common stock they own at closing. Upon closing of the transaction, CenturyLink shareholders are expected to own approximately 50.5 percent and Qwest shareholders are expected to own approximately 49.5 percent of the combined company. The deal represents a premium to Qwest shareholders of approximately 15 percent over Qwest's closing stock price on April 21, 2010.
The companies expect their merger to generate annual operating and capital synergies of approximately $625 million when fully recognized over a three- to five-year period. Key drivers of these synergies include reduction of corporate overhead, elimination of duplicate functions and systems, and increased operational efficiencies. The transaction also is expected to generate annual capital expenditure synergies of approximately $50 million within the first two years after close.
As of December 31, 2009, CenturyLink and Qwest served local markets in 37 states with approximately 5 million broadband customers, 17 million access lines, 1,415,000 video subscribers and 850,000 wireless consumers. The corporate headquarters of the combined company will be Monroe, La. The company also will maintain a key operational presence in Denver, including a regional headquarters, the Qwest Business Markets Group, as well as other functions to be determined.
Reasons given for the merger include:
- Increased Capabilities: The combination creates a robust, national 173,000-mile fiber network. With a more diverse mix of offerings, increased scale and stronger product portfolio, the company will be able to reach more customers with a broad range of solutions.
- Expanded and Enhanced Competitive Offerings: The company will have the national breadth and local depth to provide broadband products and services including high speed Internet, video entertainment, data hosting and managed services, as well as fiber to cell tower connectivity and other high bandwidth services. In addition, Qwest Business serves 95 percent of Fortune 500 companies and is one of the three universal service providers for Networx, the U.S. government services contract.
- Financial Strength and Flexibility: For the 12 months ended December 31, 2009, the combined company would have had pro forma revenues of $19.8 billion, pro forma EBITDA of approximately $8.2 billion, and pro forma free cash flow of approximately $3.4 billion, excluding synergies. The combined company's pro forma net leverage would have been 2.2 times EBITDA for the 12 months ended December 31, 2009, including synergies on a full run-rate basis and excluding integration costs. No new financing or refinancing is required as a result of this transaction.
"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, stated Glen F. Post III, CenturyLink's chief executive officer and president.
"Over the last several years, Qwest has been focused 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," said Edward A. Mueller, Qwest's chairman and chief executive officer.http://http://
- In July 2009, CenturyTel merged with EMBARQ, the former wireline division of Sprint.. EMBARQ, which was formerly Sprint's Local Telecommunications Division (spun out as an independent company in 2006). At the time this deal was announced, the transaction reflected an enterprise value of approximately $11.6 billion for Embarq, including the assumption of $5.8 billion of EMBARQ's debt. And at the time, Embarq had 5.8 million local phone lines and 1.4 million DSL customers.
