By Franklin Paul and Sinead Carew
NEW YORK (Reuters) - CenturyTel Inc
The acquisition comes as more consumers unplug their home phones and go wireless, leaving CenturyTel and its rivals to turn to mergers to support their long-term viability in the contracting business. CenturyTel, which is changing its name to CenturyLink, became the largest U.S. rural phone company when it bought Embarq last year.
CenturyTel offered a 15 percent premium to Qwest's market price, and expects the deal to add to free cash flow right away, estimating savings of about $625 million over three to five years.
Still, analysts said it might be tough to cut more costs from Qwest, which has lost landline subscribers as the economy weakened and consumers disconnected home phones.
"Qwest has cut its operations to the bone and continues to lose lines," said Donna Jaegers, analyst at D.A Davidson & Co. "So this will be a big challenge for Century to see if they can turn things around at Qwest."
Under the deal, Qwest shareholders will receive 0.1664 share of rural phone company CenturyTel for each share of Qwest common stock they own.
Based on CenturyTel's closing price of $36.20 on Wednesday, Qwest shareholders would receive an equivalent of $6.02 of CenturyTel stock, a premium of about 15 percent over Qwest's closing stock price of $5.24.
CenturyTel shares were down 3 percent, or $1.02, at $35.18 in early trading on the New York Stock Exchange. Qwest shares were up 3 percent, or 17 cents to $5.41.
CenturyTel, which has a market value of about $10.9 billion, said the transaction reflects an enterprise value of Qwest of about $22.4 billion, including the assumption of $11.8 billion of Qwest's net debt outstanding.
The deal improves its ability to reach customers over its network, deploy new high-speed services to business customers, and expand the availability of broadband connections to consumers, CenturyTel Chief Executive Glen Post said.
Post will be CEO of the combined company, which will have customers in 37 states and about 17 million access lines.
Stifel Nicolaus analyst Chris King said that while CenturyTel was adding "a lot of scale" in buying Qwest, excitement surrounding the deal may be muted.
"It's buying a company with faster declining revenue than it has," he said.
Qwest, based in Denver, Colorado, was a high-flyer in the early dotcom era. Like many telecom companies at the time, it spent billions of dollars laying miles of fiber optic cable in anticipation of heavy Internet traffic.
It was subsequently crushed when it became apparent that that demand was not materializing. Qwest was also hit by accounting scandals involving then CEO Joseph Nacchio.
After the deal closes, CenturyTel's board will add four members from the current Qwest board, including Qwest CEO Edward Mueller. The company will be headquartered in Monroe, Louisiana, but it will keep a regional headquarters in Denver.
Barclays Capital, Evercore Partners, and J.P. Morgan acted as financial advisors to CenturyLink. Lazard, Deutsche Bank, and Morgan Stanley were financial advisors to Qwest.
(Reporting by Franklin Paul and Sinead Carew, additional reporting by John Tilak; Editing by Derek Caney, Dave Zimmerman and Tiffany Wu)
