CenturyTel to buy Embarq for $5.8B

Acquisition makes 'strategic sense,' CenturyTel CEO says

CenturyTel Inc. has reached an agreement to acquire rival telecommunications carrier Embarq Corp. for $5.8 billion, creating a company that operates in 33 U.S. states.

The deal, announced today, will be a stock-for-stock transaction, and Embarq shareholders will own about 66% of the combined company after the deal closes. Embarq shareholders would receive a 36% premium on the company's stock price as of Friday.

The combined company will have revenue of more than $8.8 billion, with Embarq revenue more than double that of CenturyTel's so far this year.

In addition to the $5.8 billion price tag, CenturyTel will also assume $5.8 billion in Embarq debt. Earlier this month, news reports said Embarq had hired J.P. Morgan Chase to look for buyers for the company. Embarq's operating revenue through Sept. 30 was $4.6 billion, down from $4.8 billion for the first nine months of 2007.

The merger will allow the combined company to be more competitive with other telecom carriers, officials at the companies said during a conference call. In addition, it will be able to save about $400 million annually within three years, they said.

The acquisition "makes great strategic sense," said Glen Post, CenturyTel's chairman and CEO. "It diversifies our revenues and provides us with expanded networks, expertise and financial resources to build long-term shareholder value."

Post will remain CEO of the combined company, with Embarq CEO Tom Gerke serving as executive vice chairman. Eight of the new company's 15 board members will come from CenturyTel, with the rest coming from Embarq. The company will be based in Monroe, La., where CenturyTel is now located, but it will maintain a significant presence in Overland Park, Kan., Embarq's home base, Post said.

Gerke said he had "substantial enthusiasm" for the deal. "Together, we'll be much stronger than operating alone," he said.

CenturyTel now provides voice, broadband and television services to rural areas and small cities in 25 states. The company reported operating revenue of $650 million for the third quarter of 2008, down more than 8% from the same quarter in 2007. Net income was $82.8 million, down more than 23% from a year ago.

Embarq was spun off from Sprint Nextel about two years ago. It offers home phone and broadband services to customers in 18 states. The company today reported operating revenue of $1.5 billion for the third quarter of 2008, down about 4% from the third quarter of 2007. Net income was up nearly 2%, to $160 million. Dan Hesse, CEO of Sprint, was formerly the top executive at Embarq before taking the new job in December 2007.

The combined company will have about 8 million telephone customers, 2 million broadband customers and 400,000 video customers.

The deal should benefit both companies, said Jeff Kagan, an independent telecom analyst.

"There has been a lot of talk recently about Embarq wanting to be acquired," he said. "However, the financial crisis that is on the front page every day made finding a partner difficult. That may have lowered the price Embarq hoped to get. CenturyTel saw an opportunity and jumped in to acquire Embarq. Timing was on CenturyTel's side in this deal."

The acquisition will need approval from both companies' stockholders and from federal and state regulators. The companies expect the deal to close in the second quarter of 2009.

Copyright © 2008 IDG Communications, Inc.

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