Qwest, CenturyTel announce $10.5 billion merger

Both CenturyTel and Qwest are latecomers to the wireless party. Now, they want to merge in a $10.5 billion deal.

 

By Leslie Brooks Suzukamo

St. Paul Pioneer Press

April 22, 2010

Qwest Communications International may trade its western twang for a southern drawl next year. CenturyTel Inc., a Louisiana phone company, plans to buy the larger Qwest for $10.5 billion in stock, ending years of speculation over the ultimate fate of the financially hobbled Denver-based phone giant.

The proposed deal, which needs federal and some state regulatory approval, would combine Qwest, the nation's third-largest phone company and Minnesota's dominant carrier, and Monroe, La.-based CenturyTel, the fifth-largest phone company, into an entity that would serve about 17 million phone lines in 37 states.

ATT and Verizon Communications, the nation's top two telecommunications providers, would still dwarf the combined company, however. And it still would face an uncertain future. Unlike ATT and Verizon, neither Qwest nor CenturyTel owns wireless services, which offset a steady loss of landline customers by all phone companies.

Nor does either Qwest or CenturyTel have fiber optic networks as extensive as ones recently developed by the top two phone companies. ATT and Verizon are trying to use superfast broadband to deliver TV video that competes with cable companies like Comcast, while Qwest and CenturyTel resell satellite TV services.

"You've got two slowly dying companies," said Donna Jaegers, a Denver-based telecom analyst at D.A. Davidson Institutional Research.   "You put them together — do you get a bigger slowly dying company? That's what investors are grappling with," she said.

The deal is not expected to close until the first half of next year.

In the meantime, Qwest customers in Minnesota and throughout its territory of 14 western and Midwest states should see no change.   "Right now, it's very much business as usual," said Joanna Hjelmeland, spokeswoman for Qwest operations in Minnesota.

CenturyTel CEO Glen Post III said his company hasn't decided which name would be used after the acquisition but he's leaning toward "CenturyLink" for the consumer side and "Qwest" when selling to businesses.    CenturyTel adopted the CenturyLink brand after its $5.8 billion acquisition last year of Embarq, the spinoff phone line business from Sprint.

Post said the combination of CenturyLink and Qwest will give the company scale and scope, and he hinted it could lead to innovations like TV over broadband and other fast Internet services with which both companies have experimented. But he offered no specific promises.

The all-stock deal could double CenturyTel's revenue to nearly $20 billion and give its shareholders a 50.5 percent interest in the combined entity, with the balance going to Qwest shareholders.   Under the deal, Qwest stockholders get 0.1664 CenturyTel shares for each share of Qwest common stock they own at the closing. Based on the closing price of CenturyTel stock on Wednesday, the day before the deal was announced, Qwest shareholders would get $6.02, a premium of about 15 percent over that day's closing price.   The final value of the deal would depend on the stock prices for both companies at closing. Qwest stock on Thursday closed at $5.37, up 13 cents. CenturyTel's stock fell $1.19 to $35.01.

The combined companies' headquarters would be in Monroe, while Denver, Qwest's home, would retain "a key operational presence," the companies said.   The deal is expected to squeeze out $625 million in savings over three to five years by eliminating redundant jobs, and while it is assumed many job losses will come from Denver, losses could occur in states where there is overlap, like Minnesota, analyst Jaegers said.

CenturyLink has about 150 employees in Minnesota and 143,600 phone lines in scattered, mainly rural locations. Qwest has about 3,300 Minnesota employees and 1.4 million lines, Hjelmeland said.

The Communications Workers of America, the largest union in the telecommunications industry, said it "looks forward to serious discussions" with Qwest and CenturyTel.   CWA Minnesota State Council President Tim Lovaasen said the sale of Qwest was not a big surprise to his fellow union members.   Like others in the telecom world, he has heard the rumors for years that it would be sold or have to buy other companies to survive.

A decade ago, Qwest was a darling of Wall Street, an upstart broadband company led by brash CEO Joe Nacchio that took over the former U.S. West phone company and promised to shake off its dust and remake it as a broadband company.   The deal and accounting shenanigans left Qwest with a heavy debt to this day, however. Nacchio, 60, was subsequently convicted of insider trading and is serving a six-year sentence in federal prison.

"Hopefully, these guys are telephone guys," Lovaasen said of CenturyTel. "Not like those guys who took over U.S. West."

Associated Press reports were used in this story. Leslie Brooks Suzukamo can be reached at 651-228-5475